(10 Marks) Gerry Likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing

(10 Marks) Gerry Likes driving small cars and buys nearly identical ones whenever the old one needs
replacing. Typically, he trades in his old car for a new one costing about $15 000. A new car warranty
covers all repair costs above standard maintenance (standard maintenance costs are constant over the
life of the car) for the first two years. After that, his records show an average repair expense (over
standard maintenance) of $2500 in the third year (at the end of the year), increasing by 50 percent per
year thereafter. If a 30 percent declining-balance depreciation rate is used to estimate salvage values
and interest is 8 percent, how often should Gerry get a new car:
(10 Marks) Germy (see the question #4) has observed that the cars he buys are somewhat more reliable
now than in the past. A better estimate of the repair costs is $1500 in the third year, increasing by 50
percent per year thereafter, with all other information in the question #4 being the same. Now how
often should Gerry get a new car? could only the second half of the question be solved 🙂

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