Assume you need to buy a new vehicle. The junker that you paid $5,000 for two years ago has a current value of $1,500. You have narrowed the choice down to a used 2008 Jeep Cherokee with a blue book value of $8,000 and a new Hyundai Elantra with a sticker price of $12,995. You plan to drive either vehicle for at least five more years.

Required:

1. List the five steps in the decision-making process and briefly describe the key factors you would consider at each step.

2. Indicate whether each of the following factors would be relevant or irrelevant to your decision:

(a) The $5,000 you paid for your junker two years ago.

(b) The $1,500 your vehicle is worth today.

(c) The blue book value of the Jeep Cherokee.

(d) The sticker price of the Hyundai Elantra.

(e) The difference in fuel economy for the Jeep and the Hyundai.

(f) The cost of on-campus parking.

(g) The difference in insurance cost for the Jeep and the Hyundai.

(h) The difference in resale value five years from now for the Jeep and the Hyundai.

(i) The fact that the Hyundai comes with a warranty while the Jeep does not.

3. Consider only the costs you classified as irrelevant in #2.

(a) Would any of these costs be relevant if you were deciding whether to keep your present vehicle or buy a new one?

(b) Would any of these costs be relevant if you were deciding whether to get rid of your vehicle and ride your bike to work and school?