You are evaluating the purchase of a vehicle for your business. You’ve decided that the best choice is a car that will cost you $35,000, but you’re uncertain how long you should plan on holding the car before you replace it. The table below lists the running costs and salvage value of the vehicle for each year.
12345Running Costs-3000-3500-4000-4500-5000Salvage Value25000 20000 15000 10000 5000
What is the annual equivalent cost of replacing the vehicle every 5 years? Assume your cost of capital is 10.5%. Enter your answer to the nearest cent. Ignore taxes.
(Your answer will be a cost, and therefore a negative number. Don’t forget the minus sign.)
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