Chapter 4.A, Problem 41E

Making Decision. Consider the following situations, which each involve two options. Determine which option is less expensive. Are there unstated factors that might affect your decision?

41. You currently drive 250 miles per week in a car that gets 21 miles per gallon of gas. You are considering buying a new fuel-efficient car for $16,000 (after trade-in on your current car) that gets 45 miles per gallon. Insurance premiums for the new and old car are $800 and $400 per year, respectively, you anticipate spending $1500 per year on repairs for the old car and having no repairs on the new car. Assume gas costs $3.50 per gallon. Over a five-year period, is it less expensive to keep your old car or buy the new car?