Vashti has a suburban home within walking distance of the railroad. She commutes to work in the city at a cost of $366.50 a month. She also rents a car every weekend, which costs $450 a month including insurance and fuel. She is considering purchasing a new car for cash to replace commuting and rental costs. It would cost $22,000, get 31 miles per gallon, and have an estimated resale value of $8,000 after five years. After buying this car, Vashti would drive 20,000 miles per year and have maintenance and repairs of $1,400 per year, insurance of $1,500 per year, and fuel costs of $2.50 per gallon. Assume that all costs occur at the end of the year and that she sells the car at the end of the fifth year. If Vashti's discount rate is 7 percent after tax, should she purchase the car?

Answer rating: 100% (QA)

To determine whether Vashti should purchase the car we need to calculate the net present value NPV o... View the full answer