You own a 2013 Toyota Camry that is currently worth $16,500. You have paid it of
ID: 2647620 • Letter: Y
Question
You own a 2013 Toyota Camry that is currently worth $16,500. You have paid it off early to save interest expenses. At least two people have offered to buy it from you at that amount. You drive an average of 3150 miles per month. Your Camry gets 31 miles per gallon of gas. Current gas charges per gallon are $2.29. You expect it to go up to $2.50 per gallon next month and continue to rise at an annual rate of 5% over the next 10 years. You have been looking at a new hybrid car that will get at least 54 miles per gallon. The cost of the new car is $29,500. This includes all taxes and licenses. There is no appreciable difference in the cost of maintenance for the two cars over the next 10 years. You expect to get at least that life expectancy out of the new car, with expectations of only 8 more years of life out of the Camry. Current costs of capital are 5.5%, even though you recently sold a painting you found in a yard sale that would provide enough money to buy the car without having to borrow any funds. With this information, should you buy the hybrid car? Please attach a spreadsheet showing your work. Don't forget to adjust all expenses to their present values. Explain your decision.
Explanation / Answer
Initial Investment = 29500 - 16500 = 13000
Present Value of total Saving = $ 30644.05
Net Present Value = -13000 + 30644.05
Net Present Value = $ 17,644.05
Decision : It would be feasible to Buy new hybrid Car as NPV is positive
Working
Annual Consumption = 3150*12 = 37800
No of Gallon Saved = 37800/(54-31) = 1643.48
Gas Charges per Gallon = Previous Year Gas Rate *(1+5%)
Year Gas charges per Gallon Annual Consumption No of Gallon Saved Annual Saving PV Factor PV of Saving 1 2.50 37800 1,643.48 4,108.70 0.947867 3,894.50 2 2.63 37800 1,643.48 4,314.13 0.898452 3,876.04 3 2.76 37800 1,643.48 4,529.84 0.851614 3,857.67 4 2.89 37800 1,643.48 4,756.33 0.807217 3,839.39 5 3.04 37800 1,643.48 4,994.15 0.765134 3,821.19 6 3.19 37800 1,643.48 5,243.85 0.725246 3,803.08 7 3.35 37800 1,643.48 5,506.05 0.687437 3,785.06 8 3.52 37800 1,643.48 5,781.35 0.651599 3,767.12 Total 30,644.05Related Questions
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