Neil always trades in his car when it reaches five years of age because of the large amount of driving he does in his job. He is investigating whether there would be a financial advantage in buying a two-year-old car every three years instead of buying a new car every five years. His research indicates that, for the make of car he prefers, he could buy a two-year-old car for $18,000, whereas a new car of the same model sells for $30,000. In either case, the resale value of the five-year-old car would be $6000. Repairs and maintenance average $450 per year for the first two years of the car's life and $1500 per year for the next three. Which alternative has the lower equivalent annual cost if money is worth 7% compounded annually?

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The Answer of Neil always trades in his car when it reaches five years of age because of the large amount of driving he does in his job. He is investigating whether there would be a financial advantage in buying a two-year-old car every three years instead of buying a new car every five years. His research indicates that, for the make of car he prefers, he could buy a two-year-old car for $18,000, whereas a new car of the same model sells for $30,000. In either case, the resale value of the five-year-old car would be $6000. Repairs and maintenance average $450 per year for the first two years of the car's life and $1500 per year for the next three. Which alternative has the lower equivalent annual cost if money is worth 7% compounded annually?

Neil Always Trades in His Car When It Reaches Five