Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 13

AT T announced that the early termination fee for smart phones will jump from $175 to $375. The fee will be reduced by $10 each month of the 2-year contract. Wireless carriers justify the fees by pointing out that the cost of a new phone is heavily discounted from what the carrier pays the manufacturer. Assume AT T pays $499 for an iPhone that it sells for $199. How much profit would the company have to make each month (i.e., prior to the termination), if it wanted to make a rate of return of 1.5% per month on its $300 investment in a customer who terminates the contract after 12 months