You now own a large automobile that gets 10 miles per gallon of gasoline, and gasoline costs $1.40/gallon. You can sell this car on the used market for $6,000, or keep the car for two more years when...

You now own a large automobile that gets 10 miles per gallon of gasoline, and gasoline costs $1.40/gallon. You can sell this car on the used market for $6,000, or keep the car for two more years when it is estimated it will be worth $4,000. A new subcompact car that would serve your needs would cost $12,000. You estimate that under your conditions of use, this car would last five years and be worth $2,000 on the used market after five years. This car gets 35 miles per gallon. You drive 20,000 miles per year. Maintenance will cost $400 per year on your present car (you just purchased new tires and had an overhaul six months ago), but will average only $200 per year on the new car. Should you keep your present car or buy the new one if inexpensive transportation is your objective? Your money is worth 7% compounded yearly.