If the owner earns 5% interest on her investments,determine the equivalent annual cost of owning a carwith the following costs (EOY = end of year).Initial down payment = $2200Annual payments $5500, EOY1-EOY4Prepaid insurance $1500, growing 8% annuallyGas & oil & minor maintenance = $2000, growing10% annuallyReplacement tires = $650 at EOY4 & $800 at EOY8Major maintenance = $2400 at EOY5Salvage value = $3750 at EOY9Contributed by Paul R. McCright, University of%3D%3D%3D%3DSouth Florida

Present value factor = 1/(1+r)^n r=5%, n is the year Present value = Total yearly expense *present…

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determine the equivalent annual cost of owning a car with the following costs (EOY = end of year). %3D

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

If the owner earns 5% interest on her investments,
determine the equivalent annual cost of owning a car
with the following costs (EOY = end of year).
Initial down payment = $2200
Annual payments $5500, EOY1-EOY4
Prepaid insurance $1500, growing 8% annually
Gas & oil & minor maintenance = $2000, growing
10% annually
Replacement tires = $650 at EOY4 & $800 at EOY8
Major maintenance = $2400 at EOY5
Salvage value = $3750 at EOY9
Contributed by Paul R. McCright, University of
%3D
%3D
%3D
%3D
South Florida

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