You are considering buying a new car with a part of your student loan dollars as you really do not need the extra cash now. You have two alternatives with the following cost structures.
Speedy
Initial cost = $20,000
Annual operating cost = $8,000 Useful life = 5 years
Salvage = $2,000
Turbo
Initial cost = $16,000
Annual operating cost = $6,000 Useful life = 4 years
Salvage = $1,500
You want to evaluate these using only economic criteria. Ignore the impact of taxes and you will pay cash for the car.
a. Which criterion should you use and why? What are you assuming about implementing the projects when you use this criterion?
b. Given that MARR = 10%, which alternative should you choose?
c. Assume that MARR is 10%. If you can get a car loan at 8% per year, would you take the loan or use your cash.