Rondo is in the market for a new car.He has narrowed his search down to 2 models.Model A costs $32,000 and Model B costs
Rondo is in the market for a new car.He has narrowed his search down to 2 models.Model A costs $32,000 and Model B costs $28,000.With both cars he plans to pay cash and own them for 4 years before trading in for a new car.His research indicates that the trade in value for Model A after 4 years is 60% of the initial purchase price,while the trade in value for Model B is 45%.The interest rate is 5%.For simplicity assume that operating and maintenance costs for the models are identical.Which model is the better decision and how much "cheaper" is it than the alternative?
Model A's NCF=-32,000+32,000*60%/（1+5%)^4=-16204.11Model B's NCF=-28,000+28000*45%/（1+5%)^4=-17633.95So,Model A is the better decision,it's $17633.95-$16204.11=$1429.84 cheaper than Model B.