Tom Jackson is buying a used car. Alternative A is an American-built compact. It has an initial cost of $8900 and operating cost of 9 ¢/km, excluding depreciation. From resale statistics, Tom estimates the American car can be resold at the end of 3 years for $1700. Alternative B is a foreign-built Fiasco. Its initial cost is $8000, the operating cost, also excluding depreciation is 8 ¢/km. How low could the resale value of the Fiasco be to provide equally economical transportation? Assume Tom will drive 12,000 km/year and considers 8% as an appropriate interest rate.

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Alternative A american built compact Alternative B ... View the full answer