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    Present Value

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    You own a paid up, older car with an estimated remaining life of 3 years. You would like to replace this car with a new one, which you intend to trade in after 3 years. Is this purchase justified given the following information:

    First cost of OLD CAR zero
    First cost of NEW CAR $7500

    Annual insurance of OLD CAR $400
    Annual insurance of NEW CAR $600

    Annual fuel cost of OLD CAR $1500
    Annual fuel cost of NEW CAR $900

    Annual maintenance cost of OLD CAR $400
    Annual maintenance cost of NEW CAR $200

    Trade in value after 3 years for OLD CAR is $600
    Trade in value after 3 years for NEW CAR is $5800

    Minimum attractive rate of return 12%

    The annual costs are the average expected during the life of the cars.

    Use Present worth Method.

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    https://brainmass.com/business/annuity/present-value-estimated-retaining-life-230538

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    You own a paid up, older car with an estimated remaining life of 3 years. You would like to replace this car with a new one, which you intend to trade in after 3 years. Is this purchase justified given the following information:

    First cost of OLD CAR zero
    First cost of NEW CAR $7500

    Annual insurance of OLD CAR $400
    Annual insurance of NEW CAR $600

    Annual fuel cost of OLD CAR $1500
    Annual fuel cost of NEW CAR $900

    Annual maintenance cost of OLD CAR $400
    Annual maintenance cost of NEW CAR $200

    Trade in value after 3 years for OLD CAR is $600
    Trade in value after 3 years for NEW CAR is $5800

    Minimum attractive rate of return 12%

    The annual costs are the ...

    Solution Summary

    The solution evaluates the purchase of a new car to replace an old car.

    $2.19

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