Question
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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