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Miranda Chavez is a Lyft driver. Rapidly rising gas prices has Miranda considering the purchase of a new hybrid. She gathered the information below to

Miranda Chavez is a Lyft driver. Rapidly rising gas prices has Miranda considering the purchase of a new hybrid. She gathered the information below to help her make the decision to keep her old car or replace it with a new Honda Insight (the hybrid version of the car she now owns). Ignore tax and time value of money.

Old Honda Civic

Honda Insight (Hybrid)

Original Cost

$25,000

$30,000

Accumulated Depreciation

$6,000

Resale Value

$21,000

Annual Maintenance & Repairs

$525

$530

Insurance

$1,605

$1,753

Average Miles Driven

50,000

50,000

Weighted Avg Miles/Gallon

30

55

Average Cost per Gallon

$4.32

$4.32

Remaining Years of Useful Life

5

5

a. Should Miranda buy the more fuel-efficient Honda Insight? Why or why not? [To earn full or partial credit show all of your work.]

b. Now assume that the Years of Useful Life is not provided in the problem. There is a cutoff for years of useful life that makes the total costs over the life of Honda Civic equal to that of Honda insight. What is that cutoff?

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