1. Using a new-car price of $20,000 and assuming the market value will depreciate by 50 percent over the next four years, calculate the annual cost of depreciation given her present buying habits. Now calculate the annual cost of depreciation under the proposed change. Assume the market value will depreciate by 55 percent over the next five years. What is the annual cost savings? What is the cost savings over the five-year holding period?
2. What other factors should Ann Barnard consider before she changes her buying behavior?
Ann Barnard typically buys a new car and trades in her old one every four years. Because new cars are so expensive, recently she has considered changing her buying habits. She would like to know how much she might save in depreciation costs if instead she purchased a new car every five years.