USE FORMULA OR CALCULATOR APPROACH ONLY (NO EXCEL) (a) What is the present value of benefits of owning that car, I.e, saving on rental expenses and selling the car? (b) Should you buy the car?
USE FORMULA OR CALCULATOR APPROACH ONLY (NO EXCEL) (a) What is the present value of benefits of owning that car, I.e, saving on rental expenses and selling the car? (b) Should you buy the car?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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USE FORMULA OR CALCULATOR APPROACH ONLY (NO EXCEL)
(a) What is the
(b) Should you buy the car?
Transcribed Image Text:1. You currently do not have a car but rent a car that is parked just outside your house
whenever you need one. Your annual expenditure on rental cars is $2,500.
You've now considering purchasing a car that would give you the same level of
convenience as your current lifestyle. The car costs $25,000 and can be sold for $5,000
after 10 years. You would purchase the car with money from your savings account
which always earns an interest rate of 6%.
Assume that all cash flows occur at the end of each year (maybe because you drive
much more around Thanksgiving and Christmas).
(a) What is the present value of the benefits of owning that car, i.e., saving on rental
expenses and selling the car?
(b) Should you buy the car?
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