1. Richard has just purchased a four-year-old used car, pay $3000 for it. A friend has suggested that he determine in advance how long he should keep the car so as to ensure the greatest overall economy. Richard has decided that, because of style changes, he would not want to keep the car longer than 4 years, and he has estimated the annual expenses and MVs for years 1 through 4 as follows. If Richard's capital is worth 12% per year, at the end of which year should he dispose of the car? Annual expenses MV at end of year Year 1 $950 2,250 Year 2 $1,050 1,800 Year 3 $1,100 1,450 Year 4 $1,550 1,160
1. Richard has just purchased a four-year-old used car, pay $3000 for it. A friend has suggested that he determine in advance how long he should keep the car so as to ensure the greatest overall economy. Richard has decided that, because of style changes, he would not want to keep the car longer than 4 years, and he has estimated the annual expenses and MVs for years 1 through 4 as follows. If Richard's capital is worth 12% per year, at the end of which year should he dispose of the car? Annual expenses MV at end of year Year 1 $950 2,250 Year 2 $1,050 1,800 Year 3 $1,100 1,450 Year 4 $1,550 1,160
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1.
Richard has just purchased a four-year-old used car, pay $3000 for it.
A friend has suggested that he determine in advance how long he should
keep the car so as to ensure the greatest overall economy. Richard has
decided that, because of style changes, he would not want to keep the car
longer than 4 years, and he has estimated the annual expenses and MVs
for years 1 through 4 as follows. If Richard's capital is worth 12% per
year, at the end of which year should he dispose of the car?
Annual
expenses
MV at end
of year
Year 1
$950
2,250
Year 2
$1,050
1,800
Year 3
$1,100
1,450
Year 4
$1,550
1,160
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