(25 Pts.) 4. You and your spouse have to make a decision to keep your present car or purchase a new one. A new car will cost $10,000, last for 7 years and have an annual maintenance cost of $200 the first year increasing by $100 per year thereafter with a resale value of $3000 in 7 years. If you retain your currently owned car, the expected trade-in value and annual maintenance are listed as follows: Additional Annual Trade-in Years Kept Maintenance Value Cost $1800 $2500 2 $1500 $2000 $1500 $1500 You will not consider keeping the car for more than an additional 3 years, at which time you anticipate a $1000 trade-in value. Use a discount rate of 15%. When should you purchase a new car? MUST USE ONE MORE YEAR ANALYSIS! LECTURE # 12 -- VIEWING GUIDE