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What costs are and are not relevant to the decision

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Reference no: EM132986891

Don Baxter's 6-year-old Chevrolet Impala requires repairs estimated at $5,400 to make it roadworthy again. His friend Aaron Bloom suggested that he buy a 6-yearold Ford Escort instead for $5,400 cash.

Aaron estimated the following costs for the two cars:

COSTS                                                                                                                      IMPALA        ESCORT
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,000         $5,400
Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400               0
Annual operating costs: gas, maintenance, insurance. . . . . . . . . . . 2,900                      1,800

Problem (a) What costs are and are not relevant to this decision? Why?

Problem (b) What should Don do? Explain.

Reference no: EM132986891

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