A student is trying to decide which of two cars to purchase; an old V-8, or an equally old V-4. Data are provided in the table. Each will serve the student's needs, and it is estimated that repair costs and lifetimes for the two cars will be about the same. The car will be kept 5 years and then sold for salvage value. The primary difference comes down to the gas mileage that the two cars get. The average price of gasoline is assumed to be $1.20 per gallon.
Using the data in the table, determine how many miles per year the student would have to drive to cause the cost of the two options to be the same. If the student typically drives 8.000 miles per year, which car should be purchased? Sketch the breakeven chart. The student's MARR is 7%.
| V-8 | V-4 |
Purchase price($) | 2000 | 5000 |
Salvage value($) | 500 | 1250 |
Gas mileage (miles per gallon) | 12 | 30 |
Useful life (years) | 5 | 5 |
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