Website owner: James Miller
What does it cost to operate a motor vehicle during the "n"th year of ownership? The formula for computing it is: C = R + M + G + I + V1 - V2 where: C --- cost of operating vehicle during "n"th year R --- all money spent on repairs, service and maintenance during the year (including oil and filter changes) M --- miscellaneous costs including cost of insurance, safety inspections, emission inspections, vehicle registration, and personal property tax for the year G --- cost of gasoline for the year I --- interest paid to the bank over the course of the year on the bank loan V1 --- value of the car at the beginning of the year (i.e. retail value, bluebook value, what you could get for the car if you sold it) V2 --- value of the car at the end of the year (i.e. retail value, bluebook value, what you could get for the car if you sold it) The formula above can also be written: C = R + M + G + I + D where: D = V1 - V2 i.e. D is the depreciation for the year If you own the car outright (i.e. there is no loan on it) the formula is: C = R + M + G + V1 - V2 NOTE. There is one cost that this formula does not include. It is the cost to you, for the rest of your life, on the lost interest on the money you have laid out. For example, if you paid cash for the car and the price was $25,000, you lose the interest on that $25,000 for the rest of your life. The same applies to money that you paid out for repairs, gasoline and the various miscellaneous expenses. EXAMPLE. How much does it cost to operate a motor vehicle? Suppose one purchases a new GMC Jimmy, 4 wheel drive, sport utility vehicle for $30,000. Let us suppose one drives it 15,000 miles per year and that at the end of four years the trade-in value on it is $8700. Let us assume that the insurance on it was $1000 per year. Suppose the repair, maintenance and miscellaneous costs (including insurance) averaged $1100 per year. Assume a price of $1.40 per gallon for gasoline and that the vehicle gets 20 miles per gallon. For simplicity of computation let us assume that the person paid cash for the vehicle. How much did it cost to operate this vehicle per year? Cost of gasoline per year: 1.40 x 15000/20 = $1050.00 Repair, maintenance and misc. costs: $1100.00 Average yearly depreciation: (30000-8700)/4 = $5325 Lost interest on 30000+1050+1100 (assume 7% interest): .07 x 32150 = $2250 Total yearly cost: 1050+1100+5325+2250 = $9725 Apr 2001 More from SolitaryRoad.com:
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