You have decided to buy a car. You can either buy the car new or used. The car costs $32,000 new and lasts 14 years. For the new car, your maintenance costs would be $0 for the first 4 years, then $2,000 per year in years 5 through 8, $3,000 per year in years 9 through 12, and $4,500 per year in years 13 and 14. The used car costs $16,500 and is 4 years old and thus would only last for 10 more years. The used car would require maintenance of $2,000 per year in years 1 through 4, $3,000 per year in years 5 through 8, and $4,500 per year in years 9 and 10.
If the correct discount rate is 6%, and having a car where you have been the only owner is worth $300 a year to you, would you prefer to buy the new car or the used car?