Suppose you wish to buy a car today. You have two choices, buy a new car for $10,000 or buy a used car for $6,000. The new car has an economic life of 6 years and you expect that it can be sold at the end of 6 years for $2,000. If you buy the used car, you plan to sell it in 3 years and expect to receive $600. Also, you expect that the used car will require $400 more a year than the new car for maintenance. Assume your marginal tax rate equal to zero. If your opportunity cost of capital is 10%, would you choose the new or used car?

What is the Net Present Value for the new car?

A. -$2,631

B. -$8,871

C. -$6,544

D. -$2,037

E. None of the above

What is the real annuity equivalent for the new car?

A. -$2,631

B. -$8,871

C. -$6,544

D. -$2,037

E. None of the above

What is the present value for the used car?

A. -$2,631

B. -$8,871

C. -$6,544

D. -$2,037

E. None of the above

What is the real annuity equivalent for the used car?

A. -$2,631

B. -$8,871

C. -$6,544

D. -$2,037

E. None of the above

It is cheaper to buy the used car?

A. True

B. False