1. Scenario: Sumaira has to choose between spending $25 on one umbrella that provides 5 years of protection worth $10 per year in dry cleaning savings or a $5 umbrella that provides $9 of protection for one year.
2. Calculate NPVs @ 7% with the replacement chain method and make a recommendation. Which umbrella should she buy? Hint: assume she would buy a new, $5 umbrella every year vs. a single $25 umbrella.
3. Calculate Equivalent Annual Annuities @ 7% and make a recommendation. Which umbrella should she buy? Is your recommendation the same as with the Replacement Chain Method?
4. Use Excel