ROI Rmd Sample

CarMax ROI Problem

Honda CRX

Thesis:

The total cost of ownership for buying a new Honda CRX is lower than buying a 2-year old car from CarMax. The new car was $40,242, and the two-year car was $33,370.

The difference is the result of the older car being 2/3rds the initial purchase cost. The older car’s higher maintenance balances the higher interest of the newer car.

source('http://biostatmatt.com/R/amortize.R')

downpayment <- 5000
apr <- 10
years <- 6

model <- 'Rav4'
old_cost <- 21998 # 2016, 69k miles
old_financing <- (old_cost - downpayment)
old_maintenance <- 7600 * 0.75
old_monthly_payment <- payment(old_financing, apr, 12*years)
old_amortization_table <- amortize(old_financing, old_monthly_payment, apr, 12*years)
old_total_interest <- max(old_amortization_table$interest)

old_tco <- old_cost + old_total_interest + old_maintenance

new_cost <- 30000
new_financing <- new_cost - downpayment
new_maintenance <- 7600 * 0.25
new_monthly_payment <- payment(new_financing, apr, 12*years)
new_amortization_table <- amortize(new_financing, new_monthly_payment, apr, 12*years)
new_total_interest <- max(new_amortization_table$interest)

new_tco <- new_cost + new_total_interest + new_maintenance

barplot(c(new_tco, old_tco), 
        names.arg = c('New Car TCO', 'Old Car TCO'))

Method

Total cost of ownership included the following variables:

• Initial car purchase price
• Financing cost ($5,000 downpayment, 10% APR)
• Estimated annual maintenance

Limitations

Purchase cost was pulled from Carmax and dealer websites. Annual maintenance estimated from personal experience.