Question

A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?

Answer 1

Answer:

$6000

Explanation:

Break up of the economic cost of owning and operating the car for the year is mentioned below:

Car Bought -                                                     10,000

Add: Insurance, license and operating cost - 1,500

Add: Interest (10,000 * 10%) -                           1,000

Less: Car resold -                                             (6,500)

Total -                                                                6,000

Therefore, economic cost of owning and operating the car for the year was $6,000.