What is the fiasco is more reliable than expected

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Reference no: EM131517793

Suppose you are buying a used car. Alternative A is an American built compact. It has an initial cost of $8900 and operating costs of $0.09/km, excluding depreciation. From re-sale statistics, you estimate the American car can be resold at the end of 3 years for $1700. Alternative B is a foreign-built Fiasco. Its intial cost is $8000, the operating cost, also excluding depreciation, is $0.08/km. How low could the resale value of the Fiasco can to provide equally economical transportation?

Assume that you will drive 12,000 km/year and you consider 8% an appropriate interest rate. Recalculate how low the resale value of the Fiasco should be to provide equally economical transportation for the following situations:

1. What is the Fiasco is more reliable than expected, so that its operating cost is $0.075/km?

2. What if you drive only 9000 km/year (Operating costs are the original values)

3. What if your interest is 6% annually

4. What if (1), (2), and (3) happened simultaneously? (This means the Fiasco operating cost is $0.075/km, you drive only 9000 km/year and your interest rate is 6% annually)

Reference no: EM131517793

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