Should Jim sell his gas-guzzler? why or why not?

 

Jim's 1998 minivan is quite functional, but it only averages 20 miles per gallon (mpg). He has found a somewhat newer vehicle (roughly the same functionality) that averages 26 mpg. He can sell his current minivan for $2800 and purchase the newer vehicle for $4,000. Assume a cost of gasoline $4.00 per gallon. How many miles per year must Jim drive if he wants to recover his investment in three years? Assume an interest rate of 6%, zero salvage value for either vehicle after three years, and identical maintenance cost.