Apple introduced iPhone XR last year. Now you have two options to buy the iPhone from Apple. The first

option allows you to upgrade to a new unlocked iPhone every year with a monthly payment of $32.45. This

option comes with an AppleCare+ (a damage replacement plan). The second option requires you to pay $649

in front with a resale value of $450 after one year and $300 after two years. In this case, you need to pay $99

extra for the AppleCare+ that covers for two years. Note that AppleCare+ is not transferable to a new phone.

If you do not care whether you can have a new phone every year or every two years, you have three choices to

have an iPhone. Choice I: you can use the upgrade program; Choice II: you can pay in full in front and

purchase the AppleCare+. The next year, you'll sell the old phone and buy a new one; Choice III: it is similar

to Choice II, except that you will sell your old phone in two years and buy a new one. Assume that you will

continue with the same choice going forward. The appropriate discount rate is 9% APR on a monthly basis.

(a) What is the present value of the total costs for each choice? Can you compare the PVs to make a

decision, and why?

(b) Which choice is the best based on the EAC approach?

(c) Which choice is the best based on the matching approach?