**Title: Understanding Maintenance Costs for Used Cars****Scenario:**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 $9,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for six years? John's interest rate is 4% per year.**Instruction:**Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year.**Discussion:**John will have to set aside $[ ] to pay for maintenance. (Round to the nearest dollar.)---*Note: This activity encourages students to apply financial calculations using discrete compounding interest tables.*---### Additional Resources:- Interest and annuity tables for various interest rates- Basics of discrete compounding calculations

Answered: John 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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**Title: Understanding Maintenance Costs for Used Cars**

**Scenario:**
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 $9,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for six years? John's interest rate is 4% per year.

**Instruction:**
Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year.

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

---
*Note: This activity encourages students to apply financial calculations using discrete compounding interest tables.*

---

### Additional Resources:
- Interest and annuity tables for various interest rates
- Basics of discrete compounding calculations

Expert Solution

Step 1: define present worth:

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. The formula yields PW,

$P r e s e n t space V a l u e space equals space F u t u r e space v a l u e divided by left parenthesis 1 plus r right parenthesis to the power of n$

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