Warner Cable Company needs to replace 5 vehicles. It considering 2 different types: Type HC with a higher cost and higher gas mileage and Type LC with a lower cost and lower gas mileage. Vehicle HC is $35000 and Vehicle LC is $28000. HC averages 43 miles per gallon of gas and LC averages 25. Warner plans to finance the vehicles over 4 years and they should last 8 years. The resale value of the vehicles is 10% of the original price. The average cost per gallon of gas over the 8 year period if $4.20 and each vehicle is driven the same number of miles over the 8 years.
1. What is the monthly payment for each type of vehicle (use interest rate of 6%)?
2. What is the total purchase cost for each type of vehicle?
3. What is the estimated fuel cost if each vehicle is driven 5000 miles annually?
4. What is the estimated fuel cost if each vehicle is driven 30000 annually?
5. Which vehicle type should Warner purchase? Justify your answer.
6. Summarize this scenario.
1 answer