3. Mike is considering buying a luxury car and is interested in calculating the

Question

3. Mike is considering buying a luxury car and is interested in calculating the incremental costs of an imported car over a domestic car. The costs are summarized as shown in the table below. Ignoring the time value of money if Mike expects to have an incremental advantage of not less than $2000 on the imported car, should he buy the imported car? Cost Imported Domestic Incremental Cost: (Imported -Domestic) Purchase price $35,000 $31,000 Insurance/year 600 550 Fuel/year @15000 miles/yr 900 1,000 Property tax 1,250 1,050 Maintenance 400 600 Salvage value after 5 years 15,000 6,000 Total Gain Total Loss Net Incremental loss/Gain Buy Import? Yes or No?

Explanation / Answer

Cost Imported Domestic Incremental Cost Purchase Price 35000 31000 4000 Insurance/year 600 550 50*5=250 Fuel/year 900 1000 -100*5=-500 Property Tax 1250 1050 200 Maintenance 400 600 -200 Salvage 15000 6000 9000 Total Gain 9450 Total Loss 4700 Net Gain 4750 Buy Import

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.