A car can be purchased for P650,000 when new. There follows a schedule of annual operating expenses for each year and trade in values at the end of each year. Assume that these amounts would be repeated for future replacements, and that the car will not be kept more than 3 years. if interest on invested capital is 18% before taxes. Determine at which year's end the car should be replaced so that cost will be minimized
A car can be purchased for P650,000 when new. There follows a schedule of annual operating expenses for each year and trade in values at the end of each year. Assume that these amounts would be repeated for future replacements, and that the car will not be kept more than 3 years. if interest on invested capital is 18% before taxes. Determine at which year's end the car should be replaced so that cost will be minimized
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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A car can be purchased for P650,000 when new. There follows a schedule of
annual operating expenses for each year and trade in values at the end of each year. Assume that these amounts would be repeated for future replacements, and that the car will not be kept more than 3 years. if interest on invested capital is 18% before taxes. Determine at which year's end the car should be replaced so that cost will be minimized.
Transcribed Image Text:Year 1
Year 2
Year 3
Operating
expenses for year
P36.00
P40.00
P43.00
Trade in value at
the end of the
P420.000
P350.000
P250.000
year
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