Question

Giancarlo 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:

Giancarlo's initial investment = price of new Suzuki XL 7 + taxes and fees related to the car purchase - proceeds from trading his old car

Giancarlo's initial investment = $24,675 + $1,732 - $9,285

Giancarlo's initial investment = $17,122

The initial investment doesn't take in account the resale value or the maintenance costs of the new vehicle.