In June 2008, when gasoline prices were at an all-time high, greater than $3.73

Question

In June 2008, when gasoline prices were at an all-time high, greater than $3.73 per gallon, Chrysler Motor Company promoted its Jeep vehicle with the offer of either $3,650 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.55 per gallon of gas for the next three years (the details of the guarantee could vary by dealer) Required 1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase you expected gasoline prices to average $4.89 per gallon over the next three years How many miles would you have to drive the vehicle in the next three years to make the guarantee more attractive than the $3,650 discount? (Do not round intermediate calculations. Round your final answer up to the nearest whole number.) Miles to be driven over the three years must exceed 2. Assume the same information as in requirement 1, except the average price of gas for the next three years is not known and you are likely to drive 7,750 miles per year. What would the breakeven gasoline price in the coming three years need to be to make you indifferent between the two options? (Round your answer to 3 decimal places.) Breakeven average gasoline price

Explanation / Answer

Answer for 1)

Gallons to be used to exceed discount:

$3650=$[4.89-2.55]×no. Of gallons

No. Of gallons=$3650/$2.34 =1559.83 gallons

Miles that are to be driven over three years to exceed discount:

1559.83 gallons×15 miles=23398 miles

Answer for 2)

Atleast saving expected:$3650

Miles driven for the years:7750 miles × 3years

=23250 miles

Average savings per mile:$3650/23250 miles

=$0.157 per mile (approx.)

Saving per gallon:$0.157×15 miles[we get 15 miles per gallon]

=$2.355 per gallon

Break even average gasoline price=$2.355+$2.55

=$4.905 per gallon

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