I am looking to find the number of scenarios and the scenarios that will help me solve this business problem. Note you do not need to know business to solve this problem as well you will not be giving me the answer to this problem by telling me as there is a lot more work to after.
You have decided that you will always buy a Honda Civic but you are not
sure about the age of the car that you should buy, and you are also unsure about the
number of years till you replace it. The following table summarizes information that you
Time (t) 0 1 2 3 4 5 6
Car value 26000 21000 18000 16000 14000 12500 11000
Pleasure value 1500 700 300 200 0 500 NA
Maintenance 500 1000 1000 1500 1500 1500 NA
The table provides information about Honda Civics of ages 0-6, as you have decided that
you will never own a car that is older than 6 years.
Car value is a price of a t year old car. Thus, a new car for example costs $26,000, while
a four year old car costs $14,000. Maintenance is the beginning of year maintenance cost.
Thus, it costs a PV of $500 to maintain a new car, while it costs $1000 to maintain a 1
year old car. As owning a newer car involves more pleasure, you estimate the pleasure
value worth of driving a t year old car. Thus, driving a new car is worth to you $1500,
while driving a 4 year old car is worth nothing. Driving a 5 year old car involves a
negative pleasure of $-500.
Given the above information, and assuming that the opportunity cost of valuing car
replacement policy is 6%, what is the optimal replacement policy?
Looking at the question above, I need to find the scenarios of a replacement policy and then when I get those scenarios I can use business techniques to calculate the best one.
Is there a method in which I can quickly find the number and the specific scenarios?