You Are Looking for a Car and Have Narrowed Your

question 110

Multiple Choice

You are looking for a car and have narrowed your choice down to two options.You can buy a new car at a cost of $23,995,which has an estimated life of 12 years and annual maintenance costs of $750 per year.Your second option is a used car at a cost of $14,225,with an estimated remaining life of 7 years and annual maintenance costs of $1,800 per year.Which is the cheaper option,given your borrowing cost of 7%?

• A)The new car,since its costs have a lower PV
• B)The used car,since its costs have a lower PV
• C)The new car,since it has a lower equivalent annual annuity.
• D)The used car,since it has a lower equivalent annual annuity.
• E)The used car,since it has a higher equivalent annual annuity.