Question
You are looking for a car and have narrowed your choice down to two options. You can buy a new car at a cost of
You are looking for a car and have narrowed your choice down to two options. You can buy a new car at a cost of $23,995, which has an estimated life of 12 years and annual maintenance costs of $750 per year. Your second option is a used car at a cost of $14,225, with an estimated remaining life of 7 years and annual maintenance costs of $1,800 per year. Which is the cheaper option, given your borrowing cost of 7%? a. The new car, since it has a lower equivalent annual annuity.
b. The used car, since its costs have a lower PV
c. The new car, since its costs have a lower PV
d. The used car, since it has a lower equivalent annual annuity.
e. The used car, since it has a higher equivalent annual annuity.
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