Lowell Elsea is in the process of buying a house. He is interested in two houses. One house is two miles from his work; the other is on the outskirts of town, 34 miles from work. Surprisingly, the two houses are nearly identical, except the closer house is much more expensive. The house that is two miles from Lowell’s work is $127,000, whereas the other house is only

$109,000. Maintenance, taxes, insurance, and other costs would be the same for both houses.

Lowell goes to work about 250 days each year. Lowell has just traded his old car for a new one. Each time his car reaches 80,000 miles, Lowell trades it for a new model.

Generally, he expects to pay about $20,000 when he trades for a new car. His cars usually get about 20 miles per gallon of regular, $1.25-per-gallon gasoline. Maintenance on his car runs about 5 cents per mile on average. Other than driving to and from work, Lowell drives about 15,000 miles each year.

Regardless of which house Lowell buys, he expects to be transferred to another area of the country in five years.
Lowell is about to buy the less expensive house when he asks your advice.
Required:

a. Which house should Lowell buy?

b. How much will Lowell save if he follows your advice? (Disregard the time value of money.)

c. What qualitative factors should Lowell consider?