Katie Wanted to Buy a New Car

question 9

Essay

Katie wanted to buy a new car.However,she could not select a model that both suited her needs and was affordable at the same time.She finally decided to buy a Porsche when she learned that two of her colleagues had bought them,despite its price exceeding the money she had saved for her car.Explain her behavior.

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Definitions:

Useful Life

The estimated duration a fixed asset is expected to be economically usable, with normal repairs and maintenance, for its intended purpose.

Cash Payback Period

The duration it takes for an investment to generate an amount of cash equal to the initial investment cost.

Salvage Value

The estimated residual value of an asset at the end of its useful life, representing what it could be sold for or its scrap value.

Straight-Line

A depreciation method that equally spreads the cost of an asset over its useful life.