This paper circulates around the core theme of Calculate the total “true” cost for each vehicle over the 5-year ownership period. together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Marginal costs Jimmy Johnson is interested in buying a new Jeep SUV.
There are two options available, a V-6 model and a V-8 model. Whichever
model he chooses, he plans to drive it for a period of 5 years and then
sell it. Assume that the trade-in value of the two vehicles at the end
of the 5-year ownership period will be identical.
There are definite differences between the two models, and Jimmy
needs to make a financial comparison. The manufacturer’s suggested
retail price (MSRP) of the V-6 and V-8 are $30,260 and $44,320,
respectively. Jimmy believes the difference of $14,060 to be the
marginal cost difference between the two vehicles. However, there is
much more data available, and you suggest to Jimmy that his analysis may
be too simple and will lead him to a poor financial decision. Assume
that the prevailing discount rate for both vehicles is 5.5% annually.
Other pertinent information on this purchase is shown in the following
table:
|
V-6
|
V-8
|
|
MSRP
|
$30,260
|
$44,320
|
|
Engine (liters)
|
3.7
|
5.7
|
|
Cylinders
|
6
|
8
|
|
Depreciation over 5 years
|
$17,337
|
$25,531
|
|
Finance charges* over entire 5-year period
|
$5,171
|
$7,573
|
|
Insurance over 5 years
|
$7,546
|
$8,081
|
|
Taxes and fees over 5 years
|
$2,179
|
$2,937
|
|
Maintenance/repairs over 5 years
|
$5,600
|
$5,600
|
|
Average miles per gallon
|
19
|
14
|
|
Ownership period in years
|
5
|
5
|
|
Miles driven per year over 5 years
|
15,000
|
15,000
|
|
Cost per gallon of gas over 5-year ownership
|
$3.15
|
$3.15
|
a. Calculate the total “true” cost for each vehicle over the 5-year ownership period.
b. Calculate the total fuel cost for each vehicle over the 5-year ownership period.
c. What is the marginal fuel cost from purchasing the larger V-8 SUV?
d. What is the marginal cost of purchasing the larger and more expensive V-8 SUV?
e. What is the total marginal cost associated with purchasing the V-8
SUV? How does this figure compare with the $14,060 that Jimmy
calculated?
