You are in the market for a new car and you are thinking it might be wise to pur

Question

You are in the market for a new car and you are thinking it might be wise to purchase a hybrid car and shield yourself from high gas prices. When doing your research you learn that a conventional Tusion (CT) that costs $21,000 gets 25 miles to the gallon in town and 35 miles to the gallon highway. You also learn the hybrid Tusion (HT) costs $28,000 but gets mileage of 45 in town and 35 on the highway. The consumer reports say both models will be worth $5,500 in 10 years. Assuming a gas price of $2.25 per gallon and average annual driving of 10.000 miles in town and 20,000 miles highway, which Tusion model is the best purchase if the opportunity cost of capital is 6%?

Explanation / Answer

Tusion (CT):

Tuision (HT):

Since, the cost of NPV at Tusion (CT) ($34,184) is less compare to Tusion (HT) ($35,113). So the best model is Tusion (CT).

Particulars Tusion (CT) ($) Tuision (HT) ($) Fuel costs: In Town (10,000 miles/25 miles per gallon * $2.25 per gallon) (10,000/35 miles per gallon * $2.25 per gallon) 900 643 On Highway (20,000 miles/25 miles per gallon * $2.25 per gallon) (20,000/35 miles per gallon * $2.25 per gallon) 1,800 1,286 Total cash outflow at the end of each year 2,700 1,929 Cash outflow in first year ($21,000 + $2,700) ($28,000 + $1,929) 23,700 29,929

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

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