Mark is planning to buy a high-end laptap. The market price of the laptap is $2000. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended...

Extracted text: Mark is planning to buy a high-end laptap. The market price of the laptap is $2000. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for two more years at a price of $300. The probability of the laptap malfunctioning each year is 20%. It is also expected that a similar laptap will cost $1500 after the end of the first year, and $1000 after the end of the second year. The current market rate of interest is 10%. (a) What is the present value of having the extended warranty during the third year of ownership? (b) What is the net present value of buying the warranty?