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Nicole has a suburban home within walking distance of the railroad. She commutes to work in the city at a cost of $180 a month.
Nicole has a suburban home within walking distance of the railroad. She commutes to work in the city at a cost of $180 a month. She also rents a car every weekend, which costs $600 a month including insurance and fuel. She is considering purchasing a new car for cash to replace commuting and rental costs. It would cost $20,000, provide 28 miles per gallon, and be sold for $10,000 in five years. She would have maintenance and repairs of $2,000 per year, insurance of $1,500 per year, and fuel costs of $1.50 per gallon and would drive 15,000 miles per year. Assume all costs occur at the end of the year and that she sells the car at the end of the fifth year. If Nicole's discount rate is 7 percent after tax, should she purchase the car
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