QUESTION 9 10 points Save Answer A family now has four kids, and their subcompac

Question

QUESTION 9 10 points Save Answer A family now has four kids, and their subcompact car just isn't big enough for the kids and dog. They don't have a lot of money, so they will buy a used vehicle. They have three mutually exclusive options listed below. Assuming that the vehicles are available in the future with the same associated costs, choose a vehicle to buy using the annual worth (AW) method assuming that i = 9%. Crossover Minivan SUV C Purchase $10,000 $4,500 $8,000 Price $2,000 $2,500 $2,600 Yearly Maintenance, Gas Cost, Insurance, etc. Salvage $5,700 $2,000 $4,000 | 5 Expected Use in Years a. Crossover A b. None of these vehicles. C. Minivan B d. SUVC

Explanation / Answer

Option (a).

Annual worth (AW) of costs for the options is computed as follows.

AW, Crossover A ($) = 10,000 x A/P(9%, 5) + 2,000 - 5,700 x P/F(9%, 5) x A/P(9%, 5)

= 10,000 x 0.2571** + 2,000 - 5,700 x 0.6499** x 0.2571** = 2,571 + 2,000 - 952 = 3,619

AW, Minivan B ($) = 4,500 x A/P(9%, 3) + 2,500 - 2,000 x P/F(9%, 3) x A/P(9%, 3)

= 10,000 x 0.3951** + 2,500 - 2,000 x 0.7722** x 0.3951** = 3,951 + 2,500 - 610 = 5,841

AW, SUV C ($) = 8,000 x A/P(9%, 6) + 2,600 - 4,000 x P/F(9%, 6) x A/P(9%, 6)

= 8,000 x 0.2229** + 2,600 - 4,000 x 0.5963** x 0.2229** = 1,783 + 2,600 - 532 = 3,851

Since Crossover A has lowest AW of costs, this should be selected.

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