Do All Work on the Sheets Provided Continue on the Back if Necessary Geometric S

Question

Do All Work on the Sheets Provided Continue on the Back if Necessary Geometric Series Present Worth Factor |for i-g 1+i i-g 1. (20 pts) Victoria is choosing between a Honda Civic EX and a Honda Civic Hybrid. The EX, which she can purchase for $21,250, will cost 48¢/mile to operate. The Hybrid, which she can purchase for $24,500, will cost just 42¢/mile to operate thanks to its better gas mileage. Assuming Victoria will keep the car for 5 years and all other costs of ownership are the same, how many miles must Victoria drive each year before the Hybrid makes financial sense? Assume her MARR is 6% per year.

Explanation / Answer

Savings in hybrid = 48-42 =6/ mile

For a proposal to be acceptable its NPV must be 0 or more -

Such that the PV of savings = cost of car;

Let annual miles driven by her be A,

A x 6 x PVAF(6%,5years) = 24500

6 x 4.2124 A = 24500

A = 24500/25.2742 = 969.37 miles

Please provide feedback..... Thanks in advance.. :-)

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