Jaime has an old car that he expects will last for only three more years. He says he derives $1,000 worth of services from the car each year. He expects the scrap value of the car to be so low that it is not worth considering. If the interest rate is 7 percent, it is not likely that he will sell the car unless he is paid more than

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Quizplus · Accepted Answer

The present value of the car's services over three years at a 7% interest rate is calculated as follows: $1,000/(1.07) + $1,000/(1.07^2) + $1,000/(1.07^3) = $934.58 + $873.44 + $816.30 = $2,624.32. Therefore, Jaime would not sell the car for less than $2,624.

Jaime Has an Old Car That He Expects Will Last