Amanda has bought a second-hand car for $4,000.

Question

She plans to keep it for four
years, at the end of which it is likely to fetch $500, If the maintenance cost is $350 per
year, and i = 8% per year, what is the car's net annual cost?

Answer 1

If you don't factor in the amount she paid for the car, the cost per year will be the maintenance cost + the interest cost.

The interest cost of the car will be $4000*0.08 = $320 per year.  Adding that to the maintenance cost, the total annual cost per year is $350+$320 = $670. 

 

If you do factor in the amount she paid for the car, the cost per year will be $4000/4 + the maintenance cost + the interest cost.

$1000 + $350 + $320 = $1670 per year

 

Now, if you factor in the amount she'll get back after she sells the car, you'll subtract $500 from what you got in one of the parts above.