You are looking at a new car and dont know whether to buyconvectional or hybrid.

Question

You are looking at a new car and dont know whether to buyconvectional or hybrid. The fact are as follows                                                 Conventional                                          Hybrid Cost                                             22,000                                              27,000 Trade in value in 5years                  13000                                            16,000 Annual opeartingcost                      1,500                                             1,700 Cost permile                                       .40                                                   .30 interest 6% How many miles per year do you have to drive to make thehybrid break even? You are looking at a new car and dont know whether to buyconvectional or hybrid. The fact are as follows                                                 Conventional                                          Hybrid Cost                                             22,000                                              27,000 Trade in value in 5years                  13000                                            16,000 Annual opeartingcost                      1,500                                             1,700 Cost permile                                       .40                                                   .30 interest 6% How many miles per year do you have to drive to make thehybrid break even?

Explanation / Answer

(22,000) + 13,000 v^5 + (PV of annual operating cost) + .40m =(27,000) + 16,000v^5 + (PV Annual operating cost) + .3m.

-12,285.64 - 6,318.55 + .4m = -15,043.87 - 7161.02 + .3m

18,604.19 + .4m = 22,204.89 + .3m

.1m = 3,600.7

m = 36,007

you would have to drive the car approximately 36,000 miles to breakeven.

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