Question

Total cost of ownership for a personal vehicle

Compare the total cost of ownership for the purchase of two personal vehicles of your choice (use two that are currently for sale!). One vehicle should be a new car, while the second should be a used car that would serve as a reasonable substitute for the new car (i.e. don’t compare a Civic and Tahoe… you don’t have to compare the same exact vehicle model, but make sure they are in the same ‘class’).

What costs should you include?Maintenance/repairs, motor vehicle taxes, insurance, fuel… plus anything else you believe is relevant. This is going to require extra research, including things such as miles per gallon calculations, typical maintenance/repair needs, average insurance costs, and local motor vehicle tax information.

Also consider how long you expect your ownership period to be… will you drive the vehicles until they fall apart? Or will you trade it in after several years? Regardless of which you choose, you should estimate a salvage value at the end of your ownership period (again, this salvage value estimate will require some research into expected resale values).

1. Provide a description of vehicle #1, a new car. Calculate its total cost of ownership, being as detailed as possible in your costs.

Vehicle Description		New 2020 Jeep Compass Latitude SUV. White exterior, with black interior.
Vehicle Price		$22,345			Loan Terms
Year	1	2	3	4	5	6	7	8	9	10
Sales Tax	$340	$306	272	238	204	173.40	142.80	112.20	81.60	51
Down Payment
Annual Payments
Motor Vehicle Fee
Other Taxes & Fees
Insurance
Fuel
Maintenance & Repairs
Salvage Value
TOTAL

Calculate the Net Present Value of this series of cash flows using a discount rate of 4%.

Calculate the Net Present Value of this series of cash flows using a discount rate of 7%.

Answer 1

PV of Tax only

.	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Total
Cash Flow (Tax)	$     340.00	$     306.00	$     272.00	$     238.00	$     204.00	$     173.40	$     142.80	$     112.20	$        81.60	$        51.00	$    1,921.00
PV Factor (4%)	0.962	0.925	0.889	0.855	0.822	0.79	0.76	0.731	0.703	0.676
Net Present Value (4%)	$     327.08	$     283.05	$     241.81	$     203.49	$     167.69	$     136.99	$     108.53	$        82.02	$        57.36	$        34.48	$    1,642.49
PV Factor (7%)	0.935	0.873	0.816	0.763	0.713	0.666	0.623	0.582	0.544	0.508
Net Present Value (7%)	$     317.90	$     267.14	$     221.95	$     181.59	$     145.45	$     115.48	$        88.96	$        65.30	$        44.39	$        25.91	$    1,474.08

PV of Vehicle Price

Cash Flow (Vehicle Price)	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5	2234.5
PV Factor (4%)	0.962	0.925	0.889	0.855	0.822	0.79	0.76	0.731	0.703	0.676
Net Present Value (4%)	$ 2,149.59	$ 2,066.91	$ 1,986.47	$ 1,910.50	$ 1,836.76	$ 1,765.26	$ 1,698.22	$ 1,633.42	$ 1,570.85	$ 1,510.52	$ 18,128.50
PV Factor (7%)	0.935	0.873	0.816	0.763	0.713	0.666	0.623	0.582	0.544	0.508
Net Present Value (7%)	$ 2,089.26	$ 1,950.72	$ 1,823.35	$ 1,704.92	$ 1,593.20	$ 1,488.18	$ 1,392.09	$ 1,300.48	$ 1,215.57	$ 1,135.13	$ 15,692.89

PV of Total (Price +Tax)

Total Annual Cash Flow (Price+Tax)	$ 2,574.50	$ 2,540.50	$ 2,506.50	$ 2,472.50	$ 2,438.50	$ 2,407.90	$ 2,377.30	$ 2,346.70	$ 2,316.10	$ 2,285.50	$    4,155.50
PV Factor (4%)	0.962	0.925	0.889	0.855	0.822	0.79	0.76	0.731	0.703	0.676
Net Present Value (4%)	$ 2,476.67	$ 2,349.96	$ 2,228.28	$ 2,113.99	$ 2,004.45	$ 1,902.24	$ 1,806.75	$ 1,715.44	$ 1,628.22	$ 1,545.00	$ 19,770.99
PV Factor (7%)	0.935	0.873	0.816	0.763	0.713	0.666	0.623	0.582	0.544	0.508
Net Present Value (7%)	$ 2,407.16	$ 2,217.86	$ 2,045.30	$ 1,886.52	$ 1,738.65	$ 1,603.66	$ 1,481.06	$ 1,365.78	$ 1,259.96	$ 1,161.03	$ 17,166.98

This is the total outflow of cash based on the information provided.