Doug Brady's 6-year-old truck requires repairs estimated at $5,600 to make it roadworthy again. His friend Andy

Page suggested that he buy a 6-year-old sedan instead for $6,500 cash. Andy estimated the following costs for the two cars:

Costs	Truck	Sedan
Acquisition cost	$22,000	$6,500
Repairs	5,600	0
Annual operating costs: gas, maintenance, insurance	3,100	2,900

Requirements

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

Question content area bottom

Part 1

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 2

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

Irrelevant costs:	Why?

Part 3

Requirement (b) What should

Doug

do? Explain.

Begin by completing the following analysis of cash savings and cash expenditures as a result of purchasing the

sedan.

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

Year 1: If Doug buys the sedan

Part 4

Based on the above analysis Doug ........................ purchase the sedan.

should not

should

Part 5

Requirement (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 6

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

Qualitiative considerations:	Why?