Question

Geoffrey is the owner of a small grocery store and is considering buying a car to help him transport his wares. He has found a suitable used car online that he was able to negotiate to a price of $40,000. After doing a bit more research, he has found the following additional expenses involved in the purchase:

• Insurance and registration will cost $510 per year, payable at the start of each year

• Based on mileage estimates, petrol will cost $220 per fortnight, payable at the end of each fortnight

• Servicing will cost $380 per year, payable at the end of each year (as the car was recently serviced by the previous owner

Assume that these are the only expenses involved with the purchase and operation of the car.

Geoffrey believes that the car can be used for 5 years before it will no longer be reliable, at which point he expects to sell it for a quarter of its current purchase price. He also has a business account at the bank that lets him borrow or invest money at 4.6% per annum effective.

(c) What is the total cost of buying and running the car in today's dollars? Your answer should also take into account the eventual sale price.

show working out if possible

Answer #1

Total cost of buying and running
the car= **$61,603.02**

Calculations as below:

Geoffrey is the owner of a small grocery store, and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $26,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
Insurance and registration will cost $530 per year, payable at
the start of each year
Based on mileage estimates, petrol will cost $220...

Geoffrey is the owner of a small grocery store, and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $33,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
Insurance and registration will cost $430 per year, payable at
the start of each year
Based on mileage estimates, petrol will cost $300...

Geoffrey is the owner of a small grocery store, and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $37,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase: Insurance
and registration will cost $470 per year, payable at the start of
each year Based on mileage estimates, petrol will cost $220...

Jeff is the owner of a small grocery store and is considering
buying a car to help him transport his wares. He has found a
suitable used car online that he was able to negotiate to a price
of $40,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
Insurance and registration will cost $510 per year, payable at
the start of each year
Based on mileage estimates, petrol will cost $220...

Geoffrey is the owner of a small grocery store and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $40,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
• Insurance and registration will cost $510 per year, payable at
the start of each year
• Based on mileage estimates, petrol will...

Geoffrey is the owner of a small grocery store, and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $40,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
Insurance and registration will cost $510 per year, payable at
the start of each year
Based on mileage estimates, petrol will cost $220...

Geoffrey decides not to buy the car mentioned earlier. Instead,
he is now considering a food delivery service "You, bars, meats"
that his friend Gillian has recently started. Gillian has agreed
that for a single payment of $64,000 today to help her launch her
business, she will provide all the delivery services that Geoffrey
needs for his business for the next 5 years. Geoffrey is
considering borrowing the full amount from his business account.
Suppose that Geoffrey makes level quarterly...

Geoffrey decides not to buy the car mentioned earlier.
Instead, he is now considering a food delivery service "You, bars,
meats" that his friend Gillian has recently started. Gillian has
agreed that for a single payment of $66,000 today to help her
launch her business, she will provide all the delivery services
that Geoffrey needs for his business for the next 5 years. Geoffrey
is considering borrowing the full amount from his business
account.
Suppose that Geoffrey makes level quarterly...

Gillian has entered the agreement with Geoffrey described above.
She estimates that the costs of the delivery services she has
promised to Geoffrey (petrol, insurance, wear and tear, etc) amount
to $1046.1402783752 per month in advance for the coming 5
years.
(a) If Gillian can borrow/invest money at a rate of 3.5% p.a.
effective, what is the equivalent amount today of her future
liabilities? Note that this calculation should not involve the
payment she receives from Geoffrey today.
(b) The...

Problem: The owner of a pizza shop is considering buying
a new delivery vehicle. A new vehicle would result in a
savings of $8,000 per year over the old vehicle. The new
vehicle would cost $25,000 and would have a useful life of eight
years, at which time it would be sold for $2,500. The
owner uses a 20% before-tax MARR, and the vehicle would be
depreciated by using MACRS. Should the owner purchase
the van on an after-tax basis? Use a 40% tax rate.

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