Case $5$ Part I:$$ Information Relevance for Decision Making

Problem $1$

Miranda Chavez is a Lyft driver.$$ Rapidly rising gas prices has Miranda considering the purchase of a new hybrid.$$She gathered the information below to help her make the decision to keep her old car or replace it with a new Honda Insight $($the hybrid version of the car she now owns$).$ Ignore tax and time value of money.

Old Honda Civic

Honda Insight $($Hybrid$)$

Original Cost

$$25,000$

$$30,000$

Accumulated Depreciation

$$6,000$

Resale Value

$$21,000$

Annual Maintenance & Repairs

$$525$

$$530$

Insurance

$$1,605$

$$1,753$

Average Miles Driven

$50,000$

$50,000$

Weighted Avg Miles$/$Gallon

$30$

$55$

Average Cost per Gallon

$$4\mathrm{.}32$

$$4\mathrm{.}32$

Remaining Years of Useful Life

$5$

$5$

a$.$ Should Miranda buy the more fuel$-$efficient Honda Insight?$$ Why or why not?$[$To earn full or partial credit show all of your work.$]$

$$

b$.$ Now assume that the $$Years of Useful Life$$ is not provided in the problem. There is a cutoff for years of useful life that makes the total costs over the life of Honda Civic equal to that of Honda insight. What is that cutoff?$$