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Automobile Replacement Analysis

Automobile Replacement Analysis


You are considering the purchase of a new car. You presently own a red 2013 Chevrolet Camaro 2door LS Coupe with 60,000 miles. It has 3.6 liter V6 engine with manual 6 speed transmission. It is in clean condition with all optional equipment. You purchased the car in July 2013 for $33,750. The loan for the car has been paid off. You estimate your current operating expenses to be $280 per month for gas, $160 per month for insurance, and annual maintenance and repair costs average approximately $1250. You think that you will need a brake job next year at a cost of $475, and then three years from now you would have to rebuild the transmission at a cost of $3200. If you performed these repairs, the car would last five more years after the transmission rebuild without any other major expenses. You estimate you would sell the car six years from now and the trade-in value of this current vehicle will be 45% of today’s trade-in value.


You are considering trading in this present car for a new 2015 car (you decide what car you want, but the challenger car cannot cost more than $25,000). You estimate that you could sell the new car in six years for 40% of the purchase price. You must develop estimates for annual operating costs for the new car, which include estimates for the monthly cost of gas and insurance and annual maintenance and repair cost. You can Google several Internet sites to get estimates of maintenance and repair costs.


Interest rates for new car loans are available at

  • You must pick an interest rate from this website and use this rate in your analysis.
  • Do not round the Bankrate interest rate. Use all the decimals (i.e. 3.84%).




  1. Go to and determine the purchase price of the new car and the trade-in value of the current car, which is in “clean” condition. This information is available from. Attach documentation (hard copy printouts) from the websites on the following values/costs:


  • Trade-in value of the Camero. Show all the detailed costs, not just the final value.
  • Purchase price of the new car. Show the price of the options that you have chosen for your new car.
  • Cost of gas, insurance etc. for the challenger
  • Interest rate that you obtained from


  1. Perform a replacement value analysis of the two alternatives.
  • Show all calculations (not Excel formulas).


  1. Based on the replacement value analysis, what is the trade-in value that you would have to receive for the Camaro to make the deal economical? What is your decision based on your analysis?


  1. Submit a table that shows all the costs for the defender and challenger.




To get full credit you must show all manual (hand written – not Excel) calculations including all equations and solutions.




EVERYTHING MUST BE SUBMITTED IN HARDCOPY – PLEASE DO NOT SEND ANYTHING TO ME BY EMAIL. If you have computer or printer problems, you can use the computers in the Roesch library.



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Category: Sample Questions