Question

General Assignment:

My friend drives a 2010 Nissan Altima with ? 105,500 miles. Assuming he could drive this car for up to 5 more years and then sell, calculate the equivalent uniform annual cost of ownership over the next 5 years.

Specific Instructions:

Estimate 6 costs of ownership over the next 5 years. He knows his car is aging, so at least two of your cash flows need to be gradient cash flows. Explain each of your estimates (e.g. if you estimate a salvage value, explain why). There are many sources of information about costs for cars (library, internet, local mechanics,. . . ). The more specific your information is to this car, the better.

Compute his EUAC, showing work.

Now perform a sensitivity analysis by considering if one of the factors you have estimated was either 20% higher than you estimated or 20% lower than you estimated. How will this affect your EUAC.

Identify one replacement options and calculate the same set of costs of ownership for that car.

Determine if and when you would recommend him to replace his car.

Grading

- Each of the five specific instructions is worth 20 points.

- For each 20-point instruction, 15 points are for following instructions (and correct computation)

I will check one (at random) of your sources, did you estimate 6 cash flows, were 2 of them gradients

I will check your work to see if EUAC is correct.

Discuss the role of economic analysis in the decision-making process.

Discuss what variables are missing from your analysis and why. Discuss the role uncertainty plays in this decision-making process.

“The average salvage value for a 2001 model vehicle today is $1,000.00” [Source X]

- Regardless of whether this information and source are correct, this uses no specific information about the make/model/mileage, and doesn't account for 5 more years of lost value by the end of the horizon.
2. Not showing any work, I can't follow what you did.
- THIS IS TO BE DONE IN GROUPS NO LARGER THAN 2: Vehicles have many costs of ownership, and there are many sources of information about them, so I expect different estimates from each of you. If two or more groups have very similar estimates, I'll be fairly suspicious.

Answer 1

Solution:

Given data:

A person drives a 2010 Nissan Altima with105,500 miles.

Computation of the Equivalent Uniform Annual cost(EUAC):

Solution for General assignment :

Assumed that interest rate as 15% as there is no mention.

EUAC   = 105,500 ( A/P, 15% 5 )

= 105,500 ( 0.2983 )

= 31,470.65

Therefore Equivalent uniform annual cost = 31,470.65

Particular Instructions : I might want to take charges, rescue esteem, devaluation, insurance, maintenance, rent.

Taxes: Taxes will be paid at whatever point we cause wage and when we procure resource we will get wage . Considering a sum of $2000 towards charges.

Salvage value : assessed resale esteem toward the finish of the valuable life. Thinking about a measure of $ 5,000 towards rescue esteem.

Depreciation: diminishing the estimation of an advantage. For each benefit for consistently it will be expostulated. Devaluation of $5,000 for consistently.

Insurance : protection will go up against the advantage. Protection of $800 for consistently.

Maintenance: For each benefit there will be some upkeep costs that will cause. Support of $600.

Rent : For a resource for keep it we require some space for which we shrink pay lease. Lease of $3,000 for consistently.

EUAC = 1,05,000(A/P,15%,5)-2,000(A/P,15%,5)-5,000(A/P,15%,5)-   5,000(A/P,15%,5)-800(A/P,15%,5) - 600(A/P,15%,5)-3,000(A/P,15%,5)    =1,05,000(0.2983)-2000(0.2983)-5000(0.2983)-800(0.2983)-600(0.2983)-3,000(0.2983)

= 31,470.65- 596.6 - 14915 - 14915 - 238.64 - 178.98 - 894.9

= 26,578.53

It is not a wise statement and it is not correct to keep costs it will effect

= (31,470.65 – 26,578.53)

= 4,892.12