With the high cost of gasoline, a hybrid car is an attractive alternative to gas

Question

With the high cost of gasoline, a hybrid car is an attractive alternative to gasoline only car. However, a hybrid car costs more, so it is a toss-up in the economic sense between paying for up front costs versus savings down the road. You are deciding whether to buy a hybrid car which costs $26,600 or a standard model which costs $23,300. The hybrid averages 47 miles per gallon while the standard averages 27 miles per gallon. If you drive 8000 miles per year and gasoline costs an average of $3.75 per gallon, how long will it take (in years) to make up the difference in the up-front costs? (Neglect any difference in interest payments, maintenance costs and environmental benefits)

Explanation / Answer

cost of gasoline with standard model = 8000x3.75/27 = $ 1111.11

cost of gasoline with hybrid model = 8000x3.75/47 = $ 638.29

initial cost of hybrid model = $26600

initial cost od standard model = $23300

difference in gasoline cost per year = $ 472.81

years to make up the difference = (26600-23300) / 472.81 = 6.97

answer is 7 yrs approx

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