Because of its age, your car costs $4,000 annually in maintenance expense. You could replace it with a newer vehicle costing $8,000. Both vehicles would be expected to last 4 more years. If your opportunity cost is 8%, by how much must maintenance expense decrease on the newer vehicle to justify its purchase?
A) $1,625.40
B) $1,584.63
C) $1,469.08
D)$1,409.54

Question

Quizplus · Accepted Answer

$8,000 = PMT [(1/0.08) - 1/0.08(1.08)⁴]; PMT = $2,415.37Maintenance expense decrease required = $4,000 - 2,415.37 = $1,584.63

Because of Its Age, Your Car Costs $4,000 Annually in Maintenance