For a math professor, like Dan Myer, it has all the information that is needed. It poses questions, many of them:

- Which plan is cheapest?
- When does the 500 minutes plan become more expensive than the 1000 minutes plan?
- Should I purchase the phone for $499 or $199 given the change to the plan values?
- Is there another carrier who is cheaper?
- . . .

The question I am going to deal with is, "Should I purchase the phone for $499 or $199 given the change in the in the plan values?" For this experiment, I am going to use the Unlimited Minutes to test.

$499 + 79.99 * 24 is less than $199 + 99.99 * 24. Therefore, I should purchase the phone outright on a math basis.

Given you could invest the difference at 2%, the differing NPV's are about $170 difference. You're cost of capital for the contract is about 9% between the two plans. The cost of capital is a differential IRR equation. $-300 now, but $20 more per month over the next 24 months, which equates to 9%.

This figuring doesn't include the taxes and fees, which would presumably be higher on the $99.99 / month plan than the $79.99 / month plan. Giving even more lee-way to purchasing the phone in the beginning.

$499 + 79.99 * 24 is less than $199 + 99.99 * 24. Therefore, I should purchase the phone outright on a math basis.

Given you could invest the difference at 2%, the differing NPV's are about $170 difference. You're cost of capital for the contract is about 9% between the two plans. The cost of capital is a differential IRR equation. $-300 now, but $20 more per month over the next 24 months, which equates to 9%.

This figuring doesn't include the taxes and fees, which would presumably be higher on the $99.99 / month plan than the $79.99 / month plan. Giving even more lee-way to purchasing the phone in the beginning.

## 1 comment:

thank you-- there is no text book to help me figure things out!

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