Purchase New Tires for Your SUV
How to Calculate the Economically Attractive Premium Tires?
You need to purchase new tires for the SUV that was willed to you by your favorite aunt. The all-season light truck tires cost $86 each and are expected to last 30,000 miles. The premium brand on-off-road light truck tires cost $125 each. Assuming you drive 10,000 miles per year, how many years will the premium tires have to last for them to be as economically attractive as the all-season tires at an Interest rate of 10% per year?
Answer:
The premium tires need to last to be economically attractive. To compare the total cost of the all-season tires with the total cost of the premium tires, we need to calculate the total cost of each type of tire.
The total cost of the all-season tires: Since the tires cost $86 each and are expected to last for 30,000 miles, the total cost of the all-season tires can be calculated as follows: Total cost of all-season tires = $86 x 4 (for all 4 tires)
The total cost of the premium tires: Since the premium tires cost $125 each, the total cost of the premium tires can be calculated as follows: Total cost of premium tires = $125 x 4 (for all 4 tires)
The number of years needed for the premium tires to be economically attractive: To calculate the breakeven point, we need to find the number of years it takes for the total cost of the premium tires to be equal to the total cost of the all-season tires, taking into account an interest rate of 10% per year.