You are looking to buy a new car and do not know whether tobuy conventional or h

Question

You are looking to buy a new car and do not know whether tobuy conventional or hybrid. The facts are as follows:               Conventional       Hybrid Cost          22,000            27,000 Trade in (5yrs) 13,000            16,000 Annual Op. Cost 1,500            1,700 Cost per mile     .40              .30
Interest 6% How many miles per year do you have to drive to make theHybrid break even? Please be as detailed as possible. Thank you. You are looking to buy a new car and do not know whether tobuy conventional or hybrid. The facts are as follows:               Conventional       Hybrid Cost          22,000            27,000 Trade in (5yrs) 13,000            16,000 Annual Op. Cost 1,500            1,700 Cost per mile     .40              .30
Interest 6% How many miles per year do you have to drive to make theHybrid break even? Please be as detailed as possible. Thank you.

Explanation / Answer

Answer 7,130 Miles Explanation Conventional Depreciable cost is 22,000 -13,000 = 9,000 for 5 yrs. Depreciation per year is 9,000 / 5 = 1,800 Interest on 9,000 at 6% is 540, looking at the present valuetable 6% , 1 period is .943 540 * .943 = $ 509. Cost per mile is .40 and operating cost is $ 1,500. Step 2 is do the same work for Hybrid Depreciable cost is 27,000 - 16,000 = 11,000 for 5 yrs. Depreciation per year is 11,000 /5 = 2,200 Interest on 11,000 at 6 % is 660, looking at the presentvalue table 6% , 1 period is .943 660*.943 = 622. cost per mile is .30 and operating cost is $ 1,700 Plug in all the values in an equation, 1800 + 1500 +509 + .4X = 2,200 + 1,700 + 622 +.3X .4X - >3 X = 2,200 +1,700 +622 -1,800-1,500-509 .1X = 713 X = 713 / .1     = 7,130 miles.

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