8. 4.32 Carl and Susan Jacks have invested their savings for some years earning at a rate of 6% per year to purchase, for cash, a mid-sized SUV for their family. After much searching online and several showroom visits, two options are the finalists. The estimates below include all first cost elements (purchase, extended warranty, taxes, license, etc.)

and AOC (insurance, fuel, regular maintenance, etc.). Perform a spreadsheet-based FW evaluation at 6% per year on two time bases and select the more economical vehicle. Carl wants to plan using a 10-year horizon and Susan believes they will get tired of a SUV after 5 years.

She wants a shorter planning horizon.

1. Ten-year LCM with the repurchase of another Cadillac in year 5 for $65,000, which is $10,000 more than the first purchase.

2. Five-year study period (SP) assuming the resale value is 20% of the first cost for both SUVs.

3. Is the selection different between the LCM- and SP-based analyses?
Table Summary: Table divided into 3 columns with the headings marked from left to right as: SUV; Toyota Lexus;
and GM Cadillac.
SUV Toyota Lexus GM Cadillac First cost, $ −65,000 −55,000 AOC, year 1, $ −8,500 −9,750 Increase in AOC, %/year 2 3 Salvage value, end of life, $ 10,000 11,000 Replacement in year 5, $ — −65, 000 Life, years 10 5