Exercise 2-4 Cost comparison method

- Replacement decision You should decide whether it is profitable to replace an old car by a new one. The original car can be abandoned if it has high maintenance costs. The current annual repair costs for the existing car are € 15,000 €. The following data is available for the new vehicle:

Initial outlay € 48,000 Economic life 8 years Variable costs: Maintenance per year € 1,000 Interest rate 5 %

Based on the cost comparison method, decide whether the asset should be replaced. Fixed costs for taxes and insurance are the same for the old and the new vehicle: € 1,500. Both vehicles require operating costs of € 0.20 per kilometre when driven 30,000 kilometres per year.