Car buying
I have just purchased (at time 0) a new car for $12,000. The cost of
mainting a car during a year depends on the age of the car at the
beginning o the year, as given below. To avoid the high maintenance
costs associated with an older car, I may trade in my car and purchase
a new car. The price I receive on a trade-in depends on the age of
the car the time of trade-in. Assume it always costs $12,000 to
purchase a new car, My goal is to minimize the net cost (purchasing
costs + maintenance costs - money received in trade ins) during the
next 5 years.
| Age | Maintenance cost | Trade-in
Price
| | 0 | $2000 | $7000 |
| 1 | $4000 | $6000 |
| 2 | $5000 | $2000 |
| 3 | $9000 | $1000 |
| 4 | $12000 | $0 |