Question
Don Baxter's 6-year-old Chevrolet Impala requires repairs estimated at $5,400 to make it roadworthy again. His friend Aaron Bloom suggested that he buy a 6-yearold
Don Baxter's 6-year-old Chevrolet Impala requires repairs estimated at $5,400 to make it roadworthy again. His friend Aaron Bloom suggested that he buy a 6-yearold Ford Escort instead for $5,400 cash. Aaron estimated the following costs for the two cars:
COSTS IMPALA ESCORT
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,000 $5,400
Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400 0
Annual operating costs: gas, maintenance, insurance. . . . . . . . . . . 2,900 1,800
(a)What costs are and are not relevant to this decision? Why?
(b)What should Don do? Explain.
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