Question

John is considering a purchase of a new Toyota that costs $20,000 at a local dealership. John estimates the annual cost of maintenance, registration, insurance, and gas to be about $1,500. After extensive internet research, John estimates that he can sell his Toyota in three years for $10,000. What is John's estimated cost of owning and driving the car for three years?

Answer 1

Answer:

John's estimated cost of owning and driving the car for three years is $17,500

Explanation:

The computation of the estimated cost for the three years is shown below:

= Purchase cost of Toyota + (annual cost of  maintenance, registration, insurance,  and gas × Number of years) - selling cost or scrap value

= $20,000 + ($1,500 × 3) - $10,000

= $20,000 + $7,500 - $10,000

= $27,500 - $10,000

= $17,500

The selling cost should be deducted so that accurate value can come and the annual cost is given for one year only but we have to compute for the three years so we multiply it by three years.