You own a 10-year-old car and are considering whether to buy a new car now. Your car will last three more years whereupon you will buy a new car. The new car cost $23,000 today and prices on new cars are rising 3% per year on average. Maintenance costs on the old car will average $1000 more than the new car for 3 years starting next year. Your savings account earns 4% compounded annually.
If you buy the car now, how much do you save in present value terms vs. waiting to buy the car?
State your answer to the nearest dollar.