A person is planning to purchase a car. A new car is costing rupees 3 lacs. The resale value of the car at the end of the year is 85% of the previous year. Maintenance and repair cost during the first year are rupees 10000 and they increase by 15 % every year. The minimum resale value of the car can be rupees 75000. (a) When should the car be replaced to minimize average annual cost? (b) If interest rate of 12% is assumed, calculate the average cost at the end of 10 years.

A person is planning to purchase a car. A new car is costing rupees 3 lacs. The resale value of the car at the end of the year is 85% of the previous year. Maintenance and repair cost during the first year are rupees 10000 and they increase by 15 % every year. The minimum resale value of the car can be rupees 75000. (a) When should the car be replaced to minimize average annual cost? (b) If interest rate of 12% is assumed, calculate the average cost at the end of 10 years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A person is planning to purchase a car. A new
car is costing rupees 3 lacs. The resale value of
the car at the end of the year is 85% of the
previous year. Maintenance and repair cost
during the first year are rupees 10000 and they
increase by 15 % every year. The minimum
resale value of the car can be rupees 75000. (a)
When should the car be replaced to minimize
average annual cost? (b) If interest rate of 12% is
assumed, calculate the average cost at the end
of 10 years.

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