Tire a costs 65 and should last 40000 miles tire b costs 85, Business Economics

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Tire a costs 65 and should last 40000 miles tire b costs 85

If you drive 10,000 miles per year, which tire should you buy? Tire A costs $65 and should last 40,000 miles. Tire B costs $85 and should last 60,000 miles. You have an outstanding balance on your credit card, and you are paying 20% as an effective annual rate.

(a) What are comparable EACs for the two alternatives?

(b) What are comparable PWs for the two alternatives?

(Answer to part a: Save $.45 per year or 1.8% with Tire A.)

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Business Economics: Tire a costs 65 and should last 40000 miles tire b costs 85

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Business Economics: Tire a costs 65 and should last 40000 miles tire b costs 85

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