You are selling your 1996 Mustang. You have already spent $1000 on repairs. At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car &quo…

Question

You are selling your 1996 Mustang. You have already spent $1000 on repairs.

At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car "as is."
In each of the following scenarios, should you have the transmission repaired?

1. You could sell the car for $6500 if transmission works, $5700 if it doesn't
A. Yes
B. No

2. You could sell the car for $6000 if transmission works, $5500 if it doesn't
A. Yes
B. No

Answer 1

For scenario 1, repair the transmission since the net gain with repair ($5900) is higher than without ($5700). For scenario 2, do not repair as the net gain without repair ($5500) is higher than with repair ($5400).

Step-by-step explanation:

To determine whether it is financially better to repair the transmission or sell the car "as is," we will calculate the net gain for each scenario.

Scenario 1:

• Selling price with a working transmission: $6500
• Repair cost: $600
• Net gain if repaired: $6500 - $600 = $5900
• Selling price without repair: $5700
• Net gain without repair: $5700

Since $5900 (with repair) is more than $5700 (without repair), the answer is A. Yes, have the transmission repaired.

Scenario 2:

• Selling price with a working transmission: $6000
• Repair cost: $600
• Net gain if repaired: $6000 - $600 = $5400
• Selling price without repair: $5500
• Net gain without repair: $5500

In this case, $5400 (with repair) is less than $5500 (without repair), so the answer is B. No, do not repair the transmission.