Break-Even Analysis Hybrid cars are touted as a green alternative; however, the financial aspects of hybrid ownership are not as clear. Consider the Toyota Prius Hatchback, which had a list price of £18,390 (including tax consequences) compared with an equivalent Toyota Corolla with a list price of £15,855. Additionally, the annual ownership costs (other than fuel) for the Prius are expected to be £300 more than the Corolla. The EPA mileage estimate was 40 km/l for the Prius and 32 km/l for the Corolla.

(a) Assume that fuel costs £1.03 per litre, and you plan to keep either car for 6 years. How many kilometres per year would you need to drive to make the decision to buy the Prius worthwhile, ignoring the time value of money?

(b) If you drive 15,000 miles per year and keep either car for 6 years, what price per litre would make the decision to buy the Prius worthwhile, ignoring the time value of money?

(c) Rework parts

(a) and

(b) assuming the appropriate interest rate is 10 per cent and all cash flows occur at the end of the year.

(d) What assumption did the analysis in the previous parts make about the resale value of each car?