Answer to Question #116129 in Financial Math for Moon

Question

There are 3 caravans each costing $58,000. The first caravan models reducing balance depreciation at a rate of 4.9% p.a. The second, flat rate depreciation at a rate of 4.3% p.a. Lastly, the third model’s unit cost depreciation at a rate of $1.50/km, where you hope to travel up to 1,700 km/year. Investigate under which circumstances you would choose each of these plans. Would your conclusions change if you were to travel much less or much more than 1,700km/year?

Answer 1

The third caravan depreciation per year$=1,700*1.5=2550$

The second caravan depreciation per year:

$0.043*58,000=2494$

The first caravan depreciation per year:

$0.049*58,000=2842$

I choos the second caravan.

If I will travel less than $2494/1.5=1662.6$ km/year Iwill choos the third caravan otherwise the second.

If I hope to travel up to 1662.6 km/year or more the firs caravan I will choose if its depreciation at a rate will be less than 4.3% or cost will be less than $2494/0.049=50,897.96$