Making an Informed Decision Using the Quantitative Reasoning Process Step 1: Understand the Problem Keep the Old Car or Buy a Used Car Manny is an online student who currently owns an older car that is fully paid for. He drives, on average, 180 miles per week to commute to work. With gas prices currently at $2.87 per gallon, he is considering buying a used, fuel-efficient car, and wants to know if it would be a good financial decision. The old car Manny owns currently gets 18 miles per gallon for average fuel efficiency. It has been a great vehicle, but with its age, it needs repairs and maintenance that average $790 per year (as long as nothing serious goes wrong). He is considering buying a newer used car that will cost a total of $8,000 over a three-year loan process. The used car gets 32 miles per gallon and would only require an average of $20 per month for general maintenance. To help make a decision Manny wants to calculate the total costs for each scenario over three years. He decides to use the Quantitative Reasoning Process to do this. Step 2: Identify variables and assumptions Manny has identified some key variables for his situation. Select the two variables that should be removed from his list because they do not apply to the current situation. The year Manny was born. Mannys graduation date from elementary school. The number of miles Manny drives each week. The loan cost of the used car. The cost of repairs on the old car. Mannys wages. The cost of gas. The cost of the used car. Manny has also made a list of important assumptions he will be using to make his decision. Check the boxes for the three assumptions from his list that are not useful in this scenario. Manny assumes that nothing will go seriously wrong with either car during this three year period. Manny assumes there are 52 weeks in a year. Manny assumes gas costs will remain about the same over the three years. Manny assumes he will continue to drive about the same number of miles each week over this three year period. Manny assumes the loan period will be 3 years. Manny assumes he will still like spinach at the end of three years no matter which choice he makes. Manny assumes his lunches will continue to cost about the same for the next three years. Manny assumes he will continue to go running in the mornings every weekday for the next three years. Step 3: Apply Quantitative Tools Which one of the following quantitative tools would be most appropriate for Manny to use to decide whether the new car he is looking at would cost less than his current car over the next three years? Create a scatter diagram of car price vs. age to determine whether there is a better newer car option Calculate costs of ownership of the two options using the values he has gathered for his variables. Make an amortization table to determine the monthly payment and total interest for the loan. Read consumer reports to find and compare the confidence intervals of the average cost of ownership of both his old car and the new car. Find the total costs (gas, maintenance/repairs, purchase price) for each scenario over the three years. Round your answers to the nearest dollar. Scenario Total Cost for Three Years Keep the old car Number Buy the fuel-efficient used car Number Step 4: Make an Informed Decision Based on the information presented, what do think Manny should decide? Option #1: Keep the old car Option #2: Buy the fuel-efficient used car Option #: 2 Step 5: Evaluate Your Reasoning Manny wants to be careful to avoid a lack of follow-through. He plans to do this by making sure he does not have any unexpected expenses related to owning his car. As he looks back at his reasoning, he realizes there are a few aspects of car ownership he hadn't considered. Which three of the following expenses are most likely to be ones that will impact the cost of car ownership? The cost of sales tax on the purchase price of the car. The cost of income taxes he will pay this year. The cost of replacing a transmission in this make of car. The cost of the title and registration for the car. The cost of car insurance. Manny also realizes that the accuracy of his assumptions might play a role in his ability to follow-through with his decision. Which three of the following assumptions have the greatest potential to limit his ability to follow-through, if they turn out to be false assumptions? Manny assumes gas costs will remain about the same over the three years. Manny assumes there are 52 weeks in a year. Manny assumes that nothing will go seriously wrong with either car during this three-year period. Manny assumes he will continue to drive about the same number of miles each week over this three-year period. Manny assumes the loan period will be 3 years