Answer to Question #58932 in Economics for zach

Question

Amanda has bought a second-hand car for $4000 she plans to keep it for 4 years, at the end of which it is likely to fetch $500. if the maintenance cost is $300 per year, and I=8% per year, what is the cars net cost

Answer 1

The cost per year = maintenance cost + the interest cost.
The interest cost of the car:
$4000*0.08 = $320 per year
Taking into account the maintenance cost, the total annual cost per year: $350+$320 = $670.

The cost per year = $4000/4 + the maintenance cost + the interest cost.
$1000 + $350 + $320 = $1670 per year

If we factor in the amount Amanda get back after she sells the car, we subtract $500 from what we got in one of the parts above.