Courtney Sinclaire is trying to rent a new bicycle. She has narrowed her choices
ID: 2632017 • Letter: C
Question
Courtney Sinclaire is trying to rent a new bicycle. She has narrowed her choices to two lease arrangements, each with unique characteristics. Bike Superior would rent for $220 per year, and Bike Deluxe's annual rent would be $250. Bike Superior would need a new seat costing $35 and new racing tires costing $95. The old seat and tires could be sold for $30. Bike Deluxe is fully equipped but would need to be painted at a cost of $110. Maintenance and upkeep on both bikes would average $60 per year (10 points) a. Identify the relevant data in this problem. b. Prepare an incremental analysis for Courtney to aid her in this decision. c. What decision should Courtney make?
Explanation / Answer
a. Identify the relevant data in this problem.
All the costs including Rent, Seat, Racing Tires. The return costs for the old seat and tires. The maintenances costs are not really needed since they are the same for both bikes.
b. Prepare an incremental analysis for Courtney to aid her in this decision.
The incremental analysis is below:
c. What decision should Courtney make?
Bike Superior will be $40 less expensive in the first year. It also would result in additional savings in rent of $30 per year ($250 - $220). Assuming the quality of the bikes are comparable, then she should go with the less expensive bike (Bike Superior).
Incremental Analysis For Courtney Sinclaire Bike Superior Bike Delux Rent $220.00 $250.00 New Seat $35.00 -- Racing Tires $95.00 -- Old Seat and Tires -$30.00 -- Paint $110.00 Maint and Upkeep $60.00 $60.00 Totals $380.00 $420.00