Ganesh is considering buying a S24 000 car. After five years, he thinks, he will be able to sell the car for S8000, but this is just an estimate that he is not certain about. He is confident that gas will cost S2000 per year, insurance $800 per year, and parking $600 per year, and that maintenance costs for the first year will be $1000, rising bv $400 per year thereafter.

The alternative is for Ganesh to take taxis everywhere. This will cost an estimated $7000 per year. If he has no car, Ganesh will rent a car for the family vacation every year at a total (year-end) cost of $1000. Ganesh values money at 11% annual interest. If the salvage value of the car is $8000, should he buy the car? Base your answer on annual worth. Determine the annual worth of the car for a variety of salvage values so that you can help Ganesh decide whether this uncertainty will affect his decision.

For what break-even salvage value will he be indifferent between taking taxis and buying a car? Construct a break-even graph showing the annual worth of both alternatives as a function of the salvage value of the car. Wha t advice would you give Ganesh?