Question

This question in Ecinomic for Engineering subject  

Q: Show all possible alternatives.

Bad news – you just wrecked your car! An automobile wholesaler offers you $2,000 for the car “as is.” Your insurance company estimates that there is $2,000 of damage to your car. The insurance company can fix the car right away in a repair shop belonging to this company. Because you have collision insurance with a $1,000 deductibility provision, the insurance company mails you a check for $1,000. The odometer reading on your wrecked car is 58,000 miles.

Additional Information:

You have $7,000 in savings.

You can buy a newer car for $10,000 with an odometer reading of 28,000 miles.

After repairing the wrecked car, it can be sold for $4,500.

A discount repair shop charges $1,100 and requires 1 month.

A car rental for one month is $400.

Answer 1

There are 5 alternatives the person have:

Alternative no.1: Got the wreck car repair from the insurance compnay's repair shop, use the car rental service for a month and then again use ther repaired car.

• Total expenditure: car insurance repainring check + car rental cost
• Remaining Savings= actual savings - total expenditure
• Total expenditure: $1000 + $400= $1400
• Remaining Savings= $7000-$1400= $5600

Alternative no.2: Got the wreck car repair from the discount repair shop, use the car rental service for a month and then again use ther repaired car.

• Total expenditure: discount car shop repair bill + car rental cost
• Remaining Savings= actual savings - total expenditure
• Total expenditure: $1100 + $400= $1500
• Remaining Savings= $7000-$1500= $5500

Alternative no.3: Sell the wreck car without repair and buy a new one.

• Total expenditure: new car buying cost - un repaired used car selling price
• Remaining Savings= actual savings - total expenditure
• Total expenditure: $10000 -2000= $8000
• Remaining Savings= $7000-$8000= - $1000(which means savings $0 and car loan of $1000)
• (Car loan is negative saving)

Alternative no.4: Repair the wreck car from the insurance compnay's repair shop, use the car rental service for a month and then sell it and buy a new one:

• Total expenditure: new car buying cost - repaired used car selling price + insurance company's repainring bill + car rental cost
• Remaining Savings= actual savings - total expenditure
• Total expenditure:($10000-4500) + $1000 + $400 = $7400
• Remaining Savings= $7000-$7400= - $400 (which means savings $0 and car loan of $400)
• (Car loan is negative saving)

Alternative no.5: Repair the wreck car from the discount repair shop, use the car rental service for a month and then sell it and buy a new one:

• Total expenditure: new car buying cost - repaired used car selling price + discount repainring shop's bill + car rental cost
• Remaining Savings= actual savings - total expenditure
• (Car loan is negative saving)
• Total expenditure:($10000-4500) + $1100 + $400 = $7500
• Remaining Savings= $7000-$7500= - $500 (which means savings $0 and car loan of $500)