Question

Which car has a lower EUAC if the owner can earn 5% in his best investment?

a. Initial Cost: Corolla ($19200), Prius ($25500)
b. Annual maintenance: Corolla ($1000), Prius ($1500)
c. Annual gas and oil (increasing 15% yearly): Corolla ($2500), Prius ($1200)
d. Salvage value (Year 8): Corolla ($8000), Prius ($10000)

Answer 1

The Prius has a lower EUAC compared to the Corolla.

Step-by-step explanation:

The EUAC (Equivalent Uniform Annual Cost) compares the total costs of two different cars over a specific time period. In this case, we need to compare the Corolla and the Prius. To calculate the EUAC, we need to consider the initial cost, annual maintenance, annual gas and oil expenses, and the salvage value at Year 8. We also need to take into account the owner's potential investment earnings at a rate of 5%.

For the Corolla:

• Initial Cost: $19,200
• Annual maintenance: $1,000
• Annual gas and oil expenses (increasing 15% yearly): $2,500
• Salvage value (Year 8): $8,000

For the Prius:

• Initial Cost: $25,500
• Annual maintenance: $1,500
• Annual gas and oil expenses (increasing 15% yearly): $1,200
• Salvage value (Year 8): $10,000

To calculate the EUAC, we need to find the present value of each cost and benefit and then determine the equivalent annual cost. Using the given information, the Prius has a lower EUAC compared to the Corolla.