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    Car purchase decision

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    The following applies to both parts:

    Jerry's 5-year Chevy Geo Prism requires $3,000 in estimated repairs. His friend suggested that he buy a 5-year Honda Civic for the $3,000 cash. The following is the estimated costs for the two cars:

    Chevy Geo Prism Honda Civic
    Acquistion cost $15,000 $3,000
    Repairs $3,000 -----
    Annual operating costs $2,280 $2,100
    (Gas, maintenance, & insurance)

    1) The cost NOT relevant for this decision is __________.

    acquisition cost of the Honda Civic, acquistion cost of the Geo Prism, repairs to the Geo Prism, or annual operating costs of the Honda Civic

    2) What should Jerry do? What is his savings in the first year?

    Buy Honda Civic, $9,780, Buy Honda Civic, $180, Fix Geo Prism, $5,518, or none of these

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    Solution Preview

    1. The cost NOT relevant for this decision is: acquisition cost for the Chevy Geo Prism. This cost has already occured, and since Jerry will not be purchasing the Geo Prism again, it is not relevant to this decision. (it is somewhat of a sunk cost).
    2. What should Jerry do?
    What is his ...