Nerida Kyle is thinking of buying a car to avoid taking Lyft to work. She is using the cost-benefit principle to evaluate this decision and is calculating the costs and benefits to owning the car over the next year. She's gathered the following information to help her make her decision:
The car costs $15,000 to purchase, but she can resell it after a year of use for $13,500.
She thinks gas will cost her about $1,200 for the year.
The annual insurance premium for her car is $800.
Maintenance and repairs will cost about $300 for the year.
Using Lyft to get to work would cost her $4,000 for the year.
The cost of the car for the year is:
A)$1,500.
B)$4,000.
C)$3,800.
D)$7,800.

Question

Quizplus · Accepted Answer

To calculate the cost of owning the car for the year, we need to add up the costs of purchase, gas, insurance, and maintenance and then subtract the amount that she can resell the car for at the end of the year.

Total cost of owning the car for the year:
$15,000 (purchase cost) + $1,200 (gas) + $800 (insurance) + $300 (maintenance/repairs) - $13,500 (resale value) = $3,800

Therefore, owning the car would cost Nerida $3,800 for the year. This is significantly cheaper than taking Lyft, which would cost her $4,000 for the year. Therefore, the best choice for Nerida is to buy the car.

Nerida Kyle Is Thinking of Buying a Car to Avoid