Part 1

Buying the car. They have narrowed their choice to two models, one from dealer A and one from dealer B.

Car A

Car B

Price

$26,000

$21,000

Down payment

8%

15%

APR

1.5%

2.5%

Months to pay

60

48

Resale value

30%

40%

Miles/gallon

35

30

Cost of operating the car. In addition to their monthly car payments, G&M will need to buy gas, change the oil, and pay for insurance.

• They assume gas will average $2.60/gallon over the next 5 years. They drive 20,000 miles each year.
• Oil changes are $60 every 5000 miles.
• Insurance and licensing fees are based on the car price, and they figure that 5% of the full price each year will suffice to cover both.

Calculate:

• Monthly and total (5-yrs) payments for both car options (make sure you calculate the monthly payments only on the amount you are borrowing!)
• Monthly and 5 year operating cost for both car options, and
• Total cost of ownership of each car option over the 5 years.
• Choose the car you think George and Martha should purchase and explain why you chose the car you did.You will use the costs of the car you chose to complete Part 2.