Question

Giancarlo has received an inheritance from his rich uncle and is contemplating the purchase of a Suzuki XL7. In an attempt to make a rational decision, Giancarlo has identified the following cash flow estimates: Negotiated price of new Suzuki XL 7 $24,675 Taxes and fees on a new car purchase $1,732 Proceeds from the trade-in of old car $9,285 Estimated value of the Suzuki XL7 in 5 years $7,285 Estimated value of old car in 5 years $3,572 Estimated annual repair cost on Suzuki XL7 $350 Estimated annual repair cost on old car $925. What would be Giancarlo’s initial investment in the Suzuki XL7?

Answer 1

$17,122

Step-by-step explanation:

As for the details provided it is obvious that Giancarlo will either buy Suzuki XL7 or will continue with the old car.

In case of buying Szuki XL7 he will sell the old car.

And all the amount received from such sale will be utilized in buying the new car.

Initial investment = Net amount to be paid for acquisition, but do not include any future maintenance amount.

The amount shall be:

Negotiated price + Taxes - Amount from sale of old car

= $24,675 + $1,732 - $9,285 = $17,122