Question

you currently drive 300 miles per week in a car that gets 20 miles per gallon of gas. you are considering buying a new fuel-efficient car for $12,000 ( after trade-in on your current car) that gets 50 miles per gallon. Insurance premiums for the new and old car are $900 and $500 per year, respectively. you anticipate spending $1300 per year on repairs for the old car and having no repairs on the new car. assume gas costs $3.50 per gallon. over a five-year period, is it less expensive to keep your old car or buy the new car? by how much?

the old car is $690 less expensive

the new car is $940 less expensive

the old car is $940 less expensive

the new car is $690 less expensice

Answer 1

300 miles per week * 52 = 15600 miles per year.
15,600 miles per year * 5 = 78000 miles in 5 years.

500 dollars per year insurance * 5 = 2500 dollars in 5 years for the old car.
900 dollars per year insurance * 5 = 4500 dollars in 5 years for the new car.

78000 miles / 20 = 3900 gallons of gas in 5 years for the old car.
78000 miles / 50 = 1560 gallons of gas in 5 years for the new car.

3900 gallons of gas at 3.50 dollars per gallon equals 13650 dollars in 5 years for the old car..
1560 gallons of gas at 3.50 dollars per gallon equals 5460 dollars in 5 years for the new car.

1300 dollars a year car repairs * 5 = 6500 dollars in 5 years for the old car.

the total cost for the new car is 21960 as detailed below.

12000 for the price of the car
4500 for insurance
5460 for gas

the total cost for the old car is 22650 as detailed below.

2500 for insurance
13650 for gas
6500 for repairs

the difference is 22650 - 21960 = 690.

the new car is less expensive over the 5 years by 690 dollars. Ans is D