(4 points) Kermit is planning to buy a car. He is interested in buying a needs.
ID: 2541027 • Letter: #
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(4 points) Kermit is planning to buy a car. He is interested in buying a needs. Studebaker has two models of cars - one that uses gasoline and another that uses d gasoline model has a fuel economy of 32 miles per gallon StudeBaker oputaull iesel. The (mpg) and requires $3000 in annual maintenance. The diesel model on the other hand has a fuel economy of 44 miles per gallon (mpg) and 0 in annual maintenance. The price of the Gasoline and Diesel models are $18,995 and requires $3,25 esectively. The price of gasoline is $2.751/gallon (assume gasoline and diesel prices are stable over the planning horizon). Kermit on average drives 15,000 miles per year and intends to keep the car for 10 years. He uses a personal MARR of 8%. a. b. If the price of diesel and the price of gasoline are the same, which model should Kermit buy? At what price of diesel fuel per gallon, will Kermit incur equal annual costs irrespective of the model of car chosen? What does this mean to Kermit's decision? ow your work. Provide statementsExplanation / Answer
A. If price of disel and the price of the Gasoline are the same than kermit should buy Disel car because it will provide an additional 12 miliies per gallon (44 - 32) which will lead to reduction of the per mile cost of the car.
B. If Disel Price is $ 3.05 Per gallon { [ ($ 2.75 * (15000Milies/ 32 Milies) / (15000 milies / 44 Gallon)] - [ (3250 - 3000) / (15000 milies / 44 Gallon)] } the annual cost of kermit will remain same irrespective of the car chosen that means there will no gain or loss by selecting any of the buying decision.
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