What advice you can offer based on equivalent annual costs

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Reference no: EM131085622

Assume that a friend of yours is thinking about buying a new car. Her presently owned car can be sold for $1600 or can provide adequate service for 2 more years at an operating cost of $1500 next year and $1700 the year afterward. She has been offered $2000 for her car as a trade-in on a demonstrator that has a purchase price of $6000. The demonstrator is expected to have an economic life of 6 years, with operating costs of $800 the first year that increase by 50 per year thereafter. The value of her car in 2 years as the new car in 6 years: $600. An 8 percent interest will be the same charge is appropriate. Assuming that she will need a car indefinitely, decide what advice you can offer based on equivalent annual costs.

Reference no: EM131085622

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