Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing....

 

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Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50% per year thereafter. If a 30% declining balance depreciation rate is used, and interest is 8%, how often should Gerry get a new car? Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50% per year thereafter. If a 30% declining balance depreciation rate is used, and interest is 8%, how often should Gerry get a new car?

Answer rating: 100% (QA)

Cost of the car 15000 Depreciation rate 30 Under reduci... View the full answer