Question 6 (5 Points): ew six-speed automatic transmission for automobiles offer

Question

Question 6 (5 Points): ew six-speed automatic transmission for automobiles offers an estimated 10% improvement in fuel economy compared to traditional four-speed transmission wheel drive cars. Assume that the four-speed transmission car allows it to rom drive 50 kilometers per gallon and gasoline costs $2.5 per gallon, on average Also, assume that the car will be driven for 30,000 kilometers per year andt years. hat the lifetime of the car is 10 a. Find the annual saving if the six-speed transmission is selected. b. How much extra should a motorist pay for the six-speed transmission automobile, 3 points if the motorist can earn 10% per year on investrnents? (2 points)

Explanation / Answer

(a)

For a 4-speed car, annual fuel cost = (30,000 / 50) x $2.5 = $1,500

For a 6-speed car, there is 10% improvement in fuel economy, meaning a 10% increase in mileage. So, mileage will be (50 KM per gallon x 1.1) = 55 KM per gallon.

Therefore, annual fuel cost = (30,000 / 55) x $2.5 = $1,363.64

Annual fuel saving ($) = 1,500 - 1,363.64 = 136.36

(b)

Extra amount payable ($) = Present worth of annual savings over 10 years

= 136.36 x P/A(10%, 10) = 135.36 x 6.1446** = 837.90

**From P/A factor table

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.