**Scenario: John’s Car Maintenance Costs**John is a very cost-conscious investor. His rule of thumb is that it costs $300 per year, starting in the first year of vehicle life, to maintain an automobile. This expense increases by $300 each year over the life of the car. John is now considering the purchase of a five-year-old car with 40,000 miles on it for $6,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for seven years? John's interest rate is 7% per year.**Interest and Annuity Calculation**Click the icon to view the interest and annuity table for discrete compounding when $ i = 7\% $ per year.**Solution Calculation**John will have to set aside $ [ ] to pay for maintenance. *(Round to the nearest dollar.)*

Answered: hn is a very cost-conscious investor.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Scenario: John’s Car Maintenance Costs**

John is a very cost-conscious investor. His rule of thumb is that it costs $300 per year, starting in the first year of vehicle life, to maintain an automobile. This expense increases by $300 each year over the life of the car. John is now considering the purchase of a five-year-old car with 40,000 miles on it for $6,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for seven years? John's interest rate is 7% per year.

**Interest and Annuity Calculation**

Click the icon to view the interest and annuity table for discrete compounding when $ i = 7\% $ per year.

**Solution Calculation**

John will have to set aside $ [ ] to pay for maintenance. *(Round to the nearest dollar.)*

Expert Solution

Step 1: define present value

The time value of money concept is implied by present value or current worth. It says that money obtained now is worth more than the same amount of money received in the future. This is due to the fact that we have a chance to reinvest the money we received today. Money in the future is also unpredictable, although money in the present is more certain. Additionally, people prefer to consume now rather than in the future.

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