A BMW Costs $35 000, Its Salvage Value Declines by Declining-Balance

A BMW costs $35 000, its salvage value declines by declining-balance depreciation of 10% per year, and its maintenance costs are $100 in the first year and go up by $500 a year. Mary and Tom both like to drive BMWs. Mary trades her car in for a new model every year, whereas Tom keeps his until it reaches its economic life, then trades it in. Mary and Tom both have MARRs of 5%. How much more does Mary pay for her car per year, on average, than Tom?

A) They each pay the same.
B) $569
C) $615
D) $769
E) $869

Correct Answer:

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