Question

A used car costs $5,000. You figure you can get 2 years out of it. You drive 12,000 miles per year. Your car insurance cost $1,500 per year. You figure you will spend $400 per year on maintenance. Gas cost $2.50 per gallon, and car gets 20 miles per gallon. What will your average cost per mile after 2 years?

Answer 1

Since the value of the car is not specified after 2 years, we will assume it is zero.

Then the total cost is

... car cost + 2×(insurance cost + maintenance cost + gas cost)

... = 5000 + 2×(1500 + 400 + (12000/20*2.50))

... = 5000 + 2×(1900 + 1500)

... = 11,800

This is the cost for driving 24,000 miles, so the cost per mile is

... 11,800/24,000 ≈ 0.49167

Your average cost per mile will be about $0.49.

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The purchase price of the car is about 42% of that cost, so the operating cost is reduced somewhat if there is resale value at the end of 2 years.