Rebecca is moving away from New York City for her new job, so she must buy a car rather than rely on public transit. The new car she is considering will cost $ 18,000 to buy, $ 1,500 per year to insure, and $ 500 per year for maintenance after the 3-year warranty expires. She would keep the car for 7 years when it will have a salvage value of $ 7,000. She has found a 2-year-old car that is the same model for $ 13,000. The 3-year warranty is transferrable, so the annual maintenance cost of $500 starts in year 2. Because the car is less valuable, insurance is $300 per year less than for the new car. After 5 years, the vehicle will be 7 years old and will have the same salvage value of $ 7,000. Rebecca is ignoring costs for fuel, oil, tires and registration, because the two vehicles will have the same costs. If her interest rate is 9%, how much cheaper is the used car (difference of EAC of two vehicles)

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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Rebecca is moving away from New York City for her new job, so she must buy a car rather than rely on
public transit. The new car she is considering will cost $ 18,000 to buy, $ 1,500 per year to insure, and
$ 500 per year for maintenance after the 3-year warranty expires. She would keep the car for 7 years
when it will have a salvage value of $ 7,000.
She has found a 2-year-old car that is the same model for $ 13,000. The 3-year warranty is transferrable,
so the annual maintenance cost of $500 starts in year 2. Because the car is less valuable, insurance is
$300 per year less than for the new car. After 5 years, the vehicle will be 7 years old and will have the
same salvage value of $ 7,000.
Rebecca is ignoring costs for fuel, oil, tires and registration, because the two vehicles will have the same
costs. If her interest rate is 9%, how much cheaper is the used car (difference of EAC of two vehicles)
Transcribed Image Text:Rebecca is moving away from New York City for her new job, so she must buy a car rather than rely on public transit. The new car she is considering will cost $ 18,000 to buy, $ 1,500 per year to insure, and $ 500 per year for maintenance after the 3-year warranty expires. She would keep the car for 7 years when it will have a salvage value of $ 7,000. She has found a 2-year-old car that is the same model for $ 13,000. The 3-year warranty is transferrable, so the annual maintenance cost of $500 starts in year 2. Because the car is less valuable, insurance is $300 per year less than for the new car. After 5 years, the vehicle will be 7 years old and will have the same salvage value of $ 7,000. Rebecca is ignoring costs for fuel, oil, tires and registration, because the two vehicles will have the same costs. If her interest rate is 9%, how much cheaper is the used car (difference of EAC of two vehicles)
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