Author Question: You are planning to buy a new car. Based on your market research you have narrowed the decision to a ... (Read 28 times)

anshika · **on:** Jan 4, 2020

You are planning to buy a new car. Based on your market research you have narrowed the decision to a choice between a Honda Civic and a Toyota Corolla. Since you are indifferent between the two vehicles you decide to base you decision on relevant cost only. You will be trading in your current vehicle which you purchased used a year ago. You expect to keep the new vehicle for five years. You have gathered the following data for use in your decision:

VEHICLE	HONDA CIVIC	TOYOTA COROLLA
Purchase Price	$14,990	$15,450
Insurance (5 years)	$21,670	$19,680
Annual operating costs	$3,800	$3,800
Purchase price of current vehicle	$8,000	$8,000
Trade-in allowance for current vehicle	$5,600	$6,300
Sales tax	$1,220	$1,190
Expected sales value of new vehicle at end of five years	$8,300	$7,100

Required:
A. Which if any of the listed costs above are not relevant to your decision?
B. What are the total relevant costs and allowances of purchasing the Civic?
C. What are the total relevant costs and allowances of purchasing the Corolla?
D. What is the differential cost involved in your decision?

carojassy25 · **Reply #1 on:** Jan 4, 2020

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