Question

Trixie is considering buying a new car at a cost of $21657. She is planning to keep the car for five years and is hoping the car will sell for $3362 at the end of year 5. She estimates that insurance, fees, maintenance, and gas will be $1423 in year 1 and will gradually increase every year by $209. What is the equivalent uniform annual worth (EUAW) of this car at a 2% interest rate?

Answer 1

First, we compute Present worth (PW) of costs as follows.

In year 5, Cost will decrease by $3362 (salvage value), since we are measuring PW of costs, salvage value is deducted (being a cash inflow).

PV factor in year N = (1.02)^-N

Year	Cost ($)	PV factor @2%	Discounted Cost ($)
	(A)	(B)	(A) x (B)
0	21657	1.0000	21657
1	1423	0.9804	1395
2	1632	0.9612	1569
3	1841	0.9423	1735
4	2050	0.9238	1894
5	-1103	0.9057	-999
		PW ($) =	27250

EUAW = PW of costs / PVIFA(2%, 5) = $27250 / 4.7135** = $5781.27

**From PVIFA factor table