You own a car with somewhat high fuel consumption. It is 10 years old and can be sold now for $3,000 cash. Assume its market value (MV) in two years will be $500. The annual maintenance expenses are expected to be $400 into the foreseeable future, and the car averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the car will be used for about 200 miles per year. If you sell the old car, you can buy a newer model for $10,000. It will be under a maintenance warranty for two years, so this expense is negligible. The newer car will 10 miles per gallon of fuel and will have an MV of $7,000 in two years. Use a average two-year study period to determine which alternative is preferred. The MARR is 15% per vear. State your assumptions.

You own a car with somewhat high fuel consumption. It is 10 years old and can be sold now for $3,000 cash. Assume its market value (MV) in two years will be $500. The annual maintenance expenses are expected to be $400 into the foreseeable future, and the car averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the car will be used for about 200 miles per year. If you sell the old car, you can buy a newer model for $10,000. It will be under a maintenance warranty for two years, so this expense is negligible. The newer car will 10 miles per gallon of fuel and will have an MV of $7,000 in two years. Use a average two-year study period to determine which alternative is preferred. The MARR is 15% per vear. State your assumptions.

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You own a car with somewhat high fuel consumption. It is 10 years old and can be sold
now for $3,000 cash. Assume its market value (MV) in two years will be $500. The
annual maintenance expenses are expected to be $400 into the foreseeable future, and
the car averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the
car will be used for about 200 miles per year.
If you sell the old car, you can buy a newer model for $10,000. It will be under a
maintenance warranty for two years, so this expense is negligible. The newer car will
average 10 miles per gallon of fuel and will have an MV of $7,000 in two years. Use a
two-year study period to determine which alternative is preferred. The MARR is 15%
per year. State your assumptions.

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