Considering that Jim drives about 10,000 miles per year, our previous analysis would indicate that he...

 

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Considering that Jim drives about 10,000 miles per year, our previous analysis would indicate that he should purchase the vehicle that gets better mileage. However, what if gas prices drop by 10%? Should Jim still sell his gas-guzzling minivan? PW₁ PW₂ = $2,800 + = X 20 ($3.60) (P/A, 6%, 3) $4,000 + (*)(S3.60)(P/A, 6%, 3) X = 10,806 miles/year So, if gas prices drop by 10%, Jim should keep his minivan. Considering that Jim drives about 10,000 miles per year, our previous analysis would indicate that he should purchase the vehicle that gets better mileage. However, what if gas prices drop by 10%? Should Jim still sell his gas-guzzling minivan? PW₁ PW₂ = $2,800 + = X 20 ($3.60) (P/A, 6%, 3) $4,000 + (*)(S3.60)(P/A, 6%, 3) X = 10,806 miles/year So, if gas prices drop by 10%, Jim should keep his minivan.