Apple introduced iPhone XR last year. There are two options to buy the iPhone from Apple. The first option allows 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 a payment of $649 in front with a resale value of $450 after one year and $300 after two years. In this case, there needs to be a pay of $99 extra for the AppleCare+ that covers for two years. Note that AppleCare+ is not transferable to a new phone. If do not care whether can have a new phone every year or every two years, there are three choices to have an iPhone. Choice I: use the upgrade program; Choice II: pay in full in front and purchase the AppleCare+. The next year, sell the old phone and buy a new one; Choice III: it is similar to Choice II, except that will sell your old phone in two years and buy a new one. Assume that 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?