Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50% per year thereafter. If a 30% declining balance depreciation rate is used, and interest is 8%, how often should Gerry get a new car?

Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50% per year thereafter. If a 30% declining balance depreciation rate is used, and interest is 8%, how often should Gerry get a new car?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Gerry likes driving small cars and buys nearly identical ones whenever the old
one needs replacing. Typically, he trades in his old car for a new one costing
about $15 000. A new car warranty covers all repair costs above standard
maintenance (standard maintenance costs are constant over the life of the car)
for the first two years. After that, his records show an average repair expense
(over standard maintenance) of $2500 in the third year (at the end of the year),
increasing by 50% per year thereafter. If a 30% declining balance depreciation
rate is used, and interest is 8%, how often should Gerry get a new car?

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