Please read the question thoroughly and answer. Thank you!
1. Jesse travels from city to city for business. Every other year, they buy a used car for about $22,000. The dealer allows about $9000 as a trade-in allowance, so Jesse spends $13,000 every other year for a car. Jesse keeps accurate records of their expenses, which average out to $0.375 per mile. Jesse’s employer has two plans to reimburse car expenses:
a. Actual expenses: Jesse will receive all their operating expenses plus $5500 each year for the car’s decline in value.
b. Standard mileage rate: Jesse will receive $0.652 per mile but no operating expenses and no depreciation allowance.
Assuming that Jesse travels 15,000 miles per year, which method provides the larger reimbursement?
At what annual mileage do the two methods give the same reimbursement?
Which plan should Jesse pick based on this economic analysis, and can you think of any reasons why Jesse would opt to go with the other plan?
