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QUESTION

# My friend drives a 2010 Nissan Altima with ≈ 105,500 miles. Assuming he could drive this car for up to 5 more years and then sell, calculate the equivalent uniform annual cost of ownership over the

My friend drives a 2010 Nissan Altima with ≈ 105,500 miles. Assuming he could drive this car for up to 5 more years and then sell, calculate the equivalent uniform annual cost of ownership over the next 5 years.

Specific Instructions:

1. Estimate 6 costs of ownership over the next 5 years. He knows his car is aging, so at least two of your cash flows need to be gradient cash flows. Explain each of your estimates (e.g. if you estimate a salvage value, explain why). There are many sources of information about costs for cars (library, internet, local mechanics,. . . ). The more specific your information is to this car, the better.

2. Compute his EUAC, showing work.

3. Now incorporate uncertainty into two of your estimates (each with three or more outcomes). Again, explain your estimates. Compute the expected value and standard deviation of EUAC.

4. Perform sensitivity analysis on 2 project parameters (different from the parameters used in part 3) which do not affect total EUAC linearly. Support your explanation of the sensitivity.

5. Identify one replacement options and calculate the same set of costs of ownership for that car.

6. Determine if and when you would recommend him to replace his car.