Your car is getting old and more and more costly to maintain. Its estimated annual maintenance costs for this coming year and for the next year are given in te file attached. Its resale value is zero.

You are considering buyng a new car. Its price, annual maintenance costs (constant), and resale value after the end of warranty in five years are given in te file attached.

When should you buy a new car - now, in a year, or even later? Explain your recommendation

A B 8% $7,000 $9,500 1 Cost of capital 2 Old Car 3 Annual cost this year (maintenance + gas + taxes) 4 Annual cost next year (maintenance + gas + taxes) 5 Zero resale value 6 Ignore taxes 7 8 New Car 9 Price 10 annual cost (maintenance + gas + taxes) 11 Warranty 12 Resale value at the end of warranty 13 14 NPV 15 EAC 16 $30,000 $2,500 5 years $20,000