2) Stan bought a car three years ago for $20,000. Recently he got a promotion and is deciding whether to keep his old car or to buy a new one. His dealer told him that the current market price of his old car is $15,000. The car maintenance costs are $1,000 now, and they are going to increase each year by at least $500. Stan compares his old car with a new one that, he calculates, would have an equivalent annual cost of $4 ,100. What is Stan's optimal decision if his current interest rate is 7%?

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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2) Stan bought a car three years ago for $20,000. Recently he got a promotion and is deciding whether to keep his old
car or to buy a new one. His dealer told him that the current market price of his old car is $15,000. The car
maintenance costs are $1,000 now, and they are going to increase each year by at least $500. Stan compares his old
car with a new one that, he calculates, would have an equivalent annual cost of $4 ,100. What is Stan's optimal
decision if his current interest rate is 7%?
Transcribed Image Text:2) Stan bought a car three years ago for $20,000. Recently he got a promotion and is deciding whether to keep his old car or to buy a new one. His dealer told him that the current market price of his old car is $15,000. The car maintenance costs are $1,000 now, and they are going to increase each year by at least $500. Stan compares his old car with a new one that, he calculates, would have an equivalent annual cost of $4 ,100. What is Stan's optimal decision if his current interest rate is 7%?
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