Car Replacement
I just purchased (at time 0), a new car for $12,000. The cost of maintaining a car during a year depends on its age at the beginning of the year. 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 at the time of trade-in. Assume that at any time it costs $12000 to buy a new car.
The goal is to minimize the net cost incurred during the next five years.
Age of Car | Annual Maintenance Cost | Trade in Price
| 0 | $2000 | |
1 | $4000 | $7000 |
2 | $5000 | $6000 |
3 | $9000 | $2000 |
4 | $12000 | $1000 |
5 | | $0 |