Reference no: EM133065545

Question - Shelly purchased a brand-new Corolla for $22,000 on January 1, 20XX when she was attending a graduate school in Austin, Texas. About the middle of February, there was a severe hail in Austin area. There was a report that more than hundred vehicles has affected by hail. Unfortunately, her car was one of those with severe damage. She immediately reported the incident to her insurance company and filed an insurance claim. An inspector from a local repair center authorized by the insurance company assessed the hail damage of the car. The amount of the damage from the inspection was $3,400, and the insurance company cut a check of $2,900 to her after deducting $500.

She got a quote from a mechanic at the same repair center. The mechanic told her that he could repair the damage completely with $2,900, so there will be no extra out of pocket costs for her. One thing that bothers her was a comment made by the mechanic. He said that it looks just like a new one after the repair. He added that although no one would notice the repair, the market value of the repaired car with such hail damage are likely to reduce by $2,000.

She thought that replacing with another new Corolla (by trading-in the current one) might be a viable option for her because her car is only a two-month old car. She brought the vehicle to the dealership from which she purchased the car. She asked how much extra she would need to pay if she replaces it with a brand new car with the same model (Toyota Corolla). The sales person told her that she would need to pay $3,400 with a trade-in of the damaged car.

What would be the best for her: A) Replace it with a new car with the same model/specification at a Toyota dealership; B) Repair hail damages at a car repair center.