Question: youre thinking of buying a car to travel around in...
You're thinking of buying a car to travel around in, rather than using the train. You can buy an old second hand car for $7,000 now (t=0), and sell it after 8 years for $5,500 (t=8). You estimate that the car will cost $2,500 per year in fuel, insurance, registration and maintenance, paid in arrears, so there will be 8 payments from t=1 to t=8 inclusive. Find the equivalent annual cost (EAC) of the car if the required return is 10% pa.