A Tata Costs $10 000, Its Salvage Value Declines by Straight-Line

Multiple Choice

A Tata costs $10 000, its salvage value declines by straight-line depreciation of $1 250 per year, and its maintenance costs are $100 in the first year and go up by 50% a year. Raj and Rashid both like to drive Tata's. Raj trades her car in for a new model when it reaches its economic life, whereas Rashid keeps his until it reaches the end of its physical life. Raj and Rashid both have MARRs of 5%. How much more does Rashid pay for his Tata per year, on average, than Raj?

A) They both pay the same.
B) $53
C) $64
D) $77
E) $112