You currently don't have a car, but rent a car that's parked just outside your house whenever you need one. Your annual expenditure on rental cars is $2,400.

You've now considering purchasing a car that would give you the same level of convenience as your current life style. The car costs $23,000 and can be sold for $5,000 after 10 years. You'd purchase the car with money from your savings account which always earns an interest rate of 6%.

Assume that all cash flows occur at the end of each year (maybe because you drive much more around Thanksgiving and Christmas).

Part 1

What is the present value of the benefits of owning that car, i.e., saving on rental expenses and selling the car?

Part 2

Should you buy the car?

No

Yes