Dan

Baxter's

6-year-old

van

requires repairs estimated at

$5,100

to make it roadworthy again. His friend

Abe

Goldner suggested that he buy a 6-year-old

minivan

instead for

$5,100

cash.

Abe

estimated the following costs for the two cars:

Costs	Van	Minivan
Acquisition cost	$25,000	$5,100
Repairs	5,100	0
Annual operating costs: gas, maintenance, insurance	3,300	2,600

QUESTIONS

(a)	What costs are relevant and what costs are not relevant to this decision? Why?
(b)	What should Dan do? Explain.
(c)	What quantitative and qualitative factors are relevant to his decision? Why?

Requirement (a) What costs are relevant and what costs are not relevant to this decision? Why?Begin by identifying the relevant costs and selecting the appropriate reason why each cost is relevant. (Leave unused cells blank.)

Relevant costs:	Why?

Part 2Now identify the irrelevant costs and select the appropriate reason why each cost is irrelevant. (Leave unused cells blank.)

Irrelevant costs:	Why?

Part 3Requirement (b) What should

Dan

do? Explain.Begin by completing the following analysis of cash savings and cash expenditures as a result of purchasing the

minivan.

(Use parentheses or a minus sign to show an additional cost. Leave unused cells blank.)

Year 1: If Dan buys the minivan

Part 4Based on the above analysis

Dan

should

should not

purchase the

minivan.

Part 5Requirement (c) What quantitative and qualitative factors are relevant to his decision? Why?Begin by identifying the quantitative factors and selecting the appropriate reason for each factor. (Leave unused cells blank.)

Additional quantitative considerations:	Why?

Part 6Now identify the qualitative factors and select the appropriate reason reason for each factor.. (Leave unused cells blank.)

Qualitiative considerations:	Why?