Suppose You Are Thinking About Buying a Car

question 29

Essay

Suppose you are thinking about buying a car. The market price of the car (including all associated taxes and fees) is $18,200 which you will pay for in cash if you buy the car. You anticipate that you will receive $3,000 (above and beyond any costs associated with running and maintaining the car) worth of services from the car each year for the next eight years, after which time the car will be scrapped and will have no scrap value. If the interest rate is 6%, determine if the present value of the car is more than, less than, or equal to the market value of the car and specify whether or not it makes economic sense to purchase this car. Does the interest rate need to rise or fall in order for you to reach the opposite conclusion about buying the car? Explain your answer and support it using present value calculations.

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Definitions:

Human Resource Specialists

Professionally trained individuals who manage various aspects of employment, including hiring, training, compensation, and employee relations.

Company Benefits

Additional perks offered by employers, beyond wages or salaries, such as health insurance, retirement plans, and paid vacation, aimed at improving employee satisfaction and loyalty.

Generation Y

Also known as Millennials, the demographic cohort following Generation X, typically born between the early 1980s and mid-1990s.

Baby Boomer Employees

Individuals born between 1946 and 1964 who are part of the workforce, characterized by their unique workplace experiences and perspectives.