Jimmy Johnson is interested in buying a new Jeep SUV. There are two options available, a V-6 model and a V-8 model. Whichever model he chooses, he plans to drive it for a period of

55

years and then sell it. Assume that the trade-in value of the two vehicales at the end of the

55-year

ownership period will be identical.

There are definite differences between the two models and Jimmy needs to make a financial comparison. The manufacturer's suggested retail price (MSRP) of the V-6 and V-8 are

$30,210 and $44,020,

respectively. Jimmy believes the difference of

13,810

to be the marginal cost difference between the two vehicles.

However, there is much more data available, and you suggest to Jimmy that his analysis may be too simple and will lead him to a poor financial decision. Assume that the prevailing discount rate for both vehicles is

5.6%

annually. Other pertinent information on this purchase is shown in the following table:

MSRP	$30,210			$44,020
Engine (liters)	3.7			5.7
Cylinders	6			8
Depreciation over 5 years	$ 17,308			$ 25,358
Finance charges over entire 5-year period	$5,259			$ $7,664
Insurance over 5 years	$7,534			$8,026
Taxes and fees over 5 years	$2,175			$2,917
Maintenance/repairs over 5 years	$5,900			$5,900
Average miles per gallon	1919			1414
Ownership period in years	55			55
Miles driven per year over 5 years	12,000			12,000
Cost per gallon of gas over 5-year ownership	$3.43			$3.43

.