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Answer:
it is less expensive to purchase a new car
Step-by-step explanation:
The expected cost of gas, insurance, and repairs for the old car are ...
Total miles in 5 years = (325 mi/wk)(52 wk/yr)(5 yr) = 84,500 mi
Old car
Gas cost in 5 years = (84,500 mi)/(14 mi/gal)($3.50/gal) = $21,125
Insurance cost in 5 years = (5 yr)($600/yr) = $3,000
Repair cost in 5 years = ($1500/yr)(5 yr) = $7,500
Total operating cost in 5 years = $21125 +3000 +7500 = $31,625
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New Car
Gas cost in 5 years = (84,500 mi)/(47 mi/gal)($3.50/gal) ≈ $6,293
Insurance cost in 5 years = (5 yr)($1000/yr) = $5,000
Repair cost in 5 years = (0)(5 yr) = 0
Total operating cost in 5 years = $6293 +5000 = 11,293
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Difference in operating costs is $31,625 -11,293 = $20,332.
It is less expensive to purchase a new car for any price less than $20,300. If the new car costs only $16,000, it is the less-expensive option.
Purchase of a new car is the least-expensive option.
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Additional comments
The cost of financing, annual license fees, and resale value of the new car may also come into play. In addition, the relative non-economic values of consumption of new materials, adding old materials to the scrap heap, and environmental pollution may figure in the decision. While the car dealer may pay for maintenance costs of a new car, it seems likely that at least one set of tires will be required in 5 years (85000 miles). (Assuming wheel alignment is not an issue for tire wear, that cost may balance out for the two cars.)
