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Asset Replacement - Equivalent Annual Cost

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Because of its age, your car costs $4000 annually in maintenance expense. You could replace it with a newer vehicle costing $8000. Both vehicles would be expected to last four more years. If your opportunity cost is 8%, by how much must maintenance expense decrease on the newer vehicle to justify its purchase?

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Solution Summary

The Excel file shows calculations of decrease in maintenance expense on the newer vehicle to justify its purchase.

$2.19