Your gas-guzzling car gets only 10 miles to the gallon and has no resale value, but you are sure that it will last five years. You know that you can always buy a used car for $8,000 that gets 20 miles to the gallon. A gallon of gas costs $2 and you drive 18“In Other Words . . .” San Francisco Chronicle, January 1, 1995: Sunday Section, p. 3. She divided the $350 ticket price by 28 years to get $12.50 as the payment per year.

6,000 miles a year. If the interest rate is 5% and you are interested only in saving money, should you buy a car now rather than wait until your current car dies? Would you make the same decision if you faced a 10% interest rate? M