CONGRATULATIONS!!! You just agreed to a deal that will make you the proud new owner of a beautiful new convertible. The car comes with a three-year warranty.

Please consider the purchase of the extended warranty which has a purchase price of $1,800, today (the day you purchased your NEW car). The extended warranty covers the 4 years immediately after the three-year warranty expires. You estimate that the yearly expenses that would have been covered by the extended warranty are $400 at the end of the first year of the extension, $500 as the end of the second year of the extension, $600 at the end of the third year of the extension, and $800 at the end of the fourth year of the extension.

Assume that money during this time can earn interest at a rate of 7% compounded monthly. Will you decide to buy the warranty?

Your formal solutions should include ... The overall goal and/or purpose The given information A time-line for the expected repair costs covered by the warranty The present value for each of the repair costs The present value of the warranty and the expected profit for the warranty company Your conclusion