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3. Assume that your present car is a clunker that could be sold to a used-car dealer for $500. It will probably keep running for
3. Assume that your present car is a clunker that could be sold to a used-car dealer for $500. It will probably keep running for 2 more years, at which time it will have a scrap value of $100. Operating costs next year are expected to be $2,400 and will likely be $2,950 the following year. Its resale value will decrease by $250 during the coming year. The lowest priced new car that you can find costs $6,500. If you buy it, you plan to keep it for 7 years, at which time it will have a market value of $500. The car dealer has offered you $750 for your clunker as a trade-in on the new one and claims that your operating costs should drop to $1,200 the year and should increase by about $250 in each of the following years. Your annual interest rate is 11%. a) What is the equivalent annual cost of the new car? Use "receipts and disbursements" principles. b) What are the equivalent annual costs for your old car if you keep using it for only 1 year? If you keep using it for 2 years? Use "receipts and disbursements" principles. c) Based on the results you obtained in (a) and (b), would you keep the old car or replace it with the new car
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