You usually go to the theater to see a lot of movies. Now you are considering buying a DVD player...

Question

You usually go to the theater to see a lot of movies. Now you are considering buying a DVD player and renting movies instead. You currently pay $9 per movie when you go to the theater but if you buy the DVD player you will have to pay only $5 per movie rental. You estimate that the DVD player will cost $400 (at t = 0) and will last 3 years. Except for cost, you are indifferent to seeing movies at home or in the theater. Assume that the cost of theater tickets and rental payments occur at the end of each month and that you use the DVD player only to watch movies. Assume that you watch the same number of movies every month. Your discount rate is 1% per month. Assume that there is no inflation. How many movies per month must you watch for the DVD player purchase to be a smart purchase?

Komalavalli · Accepted Answer

Cost of DVD player per month =400/12*3 = 400/36=11
Let us assume i watch 10 movies per month
So per month cost of seeing movies in theatre is $9*10 = $90
Per month cost of seeing movies in DVD player is $5*10+11 = $61
movies per month must you watch for the DVD player purchase to be a smart purchase is 10
Cost of DVD player per month =400/12*3 = 400/36=11
 
Let us assume i watch 10 movies per month
 
So 
per month 
cost of seeing movies in 
theatre
 
is $9*10 = $90
 
Per
 
month 
cost of seeing movies in 
DVD player 
is $
5
*10
+11
 
= 
$
61
 
movies per month must you watch for the DVD player purchase to be a smart purchase
 
is 
10

You usually go to the theater to see a lot of movies. Now you are considering buying a DVD player and renting movies instead. You currently pay $9 per movie when you go to the theater but if you buy...

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