CAR SCENARIOS
- Once you have completed the schedules, note which scenario you will have to argue for in the Discussion. Using data (quantitative), and non-financial (qualitative) information, why would you select the scenario you were assigned?
- Are there any other costs (outflows) or inflows that might be considered?
- Are there any potential risks to the assumptions provided in the case?
- Would your decision be different if the time period was more than three years?
- What is your favorite car company?
INCREMENTAL ANALYSIS - DETRMINING THE BEST TRANSPORTATION OPTION 1. You own an old beat-up 2020 Ford Fusion that has become a problem. It seems like every month you are taking it to the mechanic to get something fixed. You are really getting tired of the cost of keeping it running and are considering different options. One important point: You presently live in Detroit and need your car to make sales calls. But in exactly three years you plan to move to New York City to start a tech business, where you will not need a car. SO FOR ALL THE OPTIONS, ASSUME A THREE YEAR LIFE OF THE CAR. 2. You need to decide what to do, and you have four options to choose from (see the schedule below). 3. Complete the schedule below with data based on assumptions provided. Once you have calculated the quantitative, data driven analysis then consider the non-data issues that might make one option better than the others. For the discussion, however, YOU WILL BE ASSIGNED ON OPTION THAT YOU WILL ARGUE FOR IN THE DISCUSSION GROUP AS THE BEST OF ALL THE OPTIONS. SEE THE SCHEDULE BELOW TO LEARN WHICH OPTION YOU ARE ASSIGNED TO. COMPLETE ALL YELLOW CELLS. 4. Assumptions and Supporting Information The Fusion averages $300 a month; a 2020 Edge is $10 a month; the 2015 Edge is MAINTENANCE $150 a month. GAS EXPENSE Use data in the schedule. More car, more cost. Fusion is $1,800 annually, 2020 Edge is $2,600 annually and the INSURANCE 2015 Edge is $2,200 annually. LICENSE FEES The yearly license fees are $80 Fusion, $200 2015 Edge, $300 2020 Edge. LEASE COST Use www.ford.com to determine the lease fee. Use www.ford.com and www.nada.com to determine pricing based on the described COST OF VEHICLE vehicle. DESTINATION CHARGE $1,695 for the new Edge SALVAGE VALUE OF FUSION Estimate using www.nada.com FUTURE VALUE OF SUV'S Determine the future value of a vehicle in three years to be 40% of its cost. 5. Student Assignments for Discussion: Counts Gaines Lewis Singh Alzaid Hmayed O'Donovan Stemberger Altatan Jabero Osborne Frost Katzman Turku Retain Replace-New Keep the 2010 Ford Fusion with 180.000 Purchase a new miles for three more 2020 Ford Edge SE years Base Price Replace-Used Replace-Lease New Purchase a used Lease a new 2020 2015 Ford Edge SE Ford Edge SE for (Base model w/ three years (Base 90,000 miles) model) ANNUAL COST Maintenance 18/gallon 15/gallon 18/gallon Gas Expense Gas Mileage 24/gallon Annual Miles Gas Expense (@ $2.00 gallon) 18,000 18,000 18,000 18,000 Insurance License Fees Lease Cost TOTAL ANNUAL COST $ $ $ $ ONE TIME COST Cost of Vehicle (cash) Destination Charges Sales Tax Michigan Salvage of Old Vehicle (Fusion) TOTAL ONE TIME COST/VALL $ $ $ $ $ $ $ $ Value after three years TOTAL SALVAGE VALUE $ $ $ TOTAL ANNUAL COST FOR 3 YI $ TOTAL ONE TIME COST/VALUE $ TOTAL SALVAGE VALUE $ $ $ $ $ $ $ NET COST OF OPTION $ $ $ $ INCREMENTAL ANALYSIS - DETRMINING THE BEST TRANSPORTATION OPTION 1. You own an old beat-up 2020 Ford Fusion that has become a problem. It seems like every month you are taking it to the mechanic to get something fixed. You are really getting tired of the cost of keeping it running and are considering different options. One important point: You presently live in Detroit and need your car to make sales calls. But in exactly three years you plan to move to New York City to start a tech business, where you will not need a car. SO FOR ALL THE OPTIONS, ASSUME A THREE YEAR LIFE OF THE CAR. 2. You need to decide what to do, and you have four options to choose from (see the schedule below). 3. Complete the schedule below with data based on assumptions provided. Once you have calculated the quantitative, data driven analysis then consider the non-data issues that might make one option better than the others. For the discussion, however, YOU WILL BE ASSIGNED ON OPTION THAT YOU WILL ARGUE FOR IN THE DISCUSSION GROUP AS THE BEST OF ALL THE OPTIONS. SEE THE SCHEDULE BELOW TO LEARN WHICH OPTION YOU ARE ASSIGNED TO. COMPLETE ALL YELLOW CELLS. 4. Assumptions and Supporting Information The Fusion averages $300 a month; a 2020 Edge is $10 a month; the 2015 Edge is MAINTENANCE $150 a month. GAS EXPENSE Use data in the schedule. More car, more cost. Fusion is $1,800 annually, 2020 Edge is $2,600 annually and the INSURANCE 2015 Edge is $2,200 annually. LICENSE FEES The yearly license fees are $80 Fusion, $200 2015 Edge, $300 2020 Edge. LEASE COST Use www.ford.com to determine the lease fee. Use www.ford.com and www.nada.com to determine pricing based on the described COST OF VEHICLE vehicle. DESTINATION CHARGE $1,695 for the new Edge SALVAGE VALUE OF FUSION Estimate using www.nada.com FUTURE VALUE OF SUV'S Determine the future value of a vehicle in three years to be 40% of its cost. 5. Student Assignments for Discussion: Counts Gaines Lewis Singh Alzaid Hmayed O'Donovan Stemberger Altatan Jabero Osborne Frost Katzman Turku Retain Replace-New Keep the 2010 Ford Fusion with 180.000 Purchase a new miles for three more 2020 Ford Edge SE years Base Price Replace-Used Replace-Lease New Purchase a used Lease a new 2020 2015 Ford Edge SE Ford Edge SE for (Base model w/ three years (Base 90,000 miles) model) ANNUAL COST Maintenance 18/gallon 15/gallon 18/gallon Gas Expense Gas Mileage 24/gallon Annual Miles Gas Expense (@ $2.00 gallon) 18,000 18,000 18,000 18,000 Insurance License Fees Lease Cost TOTAL ANNUAL COST $ $ $ $ ONE TIME COST Cost of Vehicle (cash) Destination Charges Sales Tax Michigan Salvage of Old Vehicle (Fusion) TOTAL ONE TIME COST/VALL $ $ $ $ $ $ $ $ Value after three years TOTAL SALVAGE VALUE $ $ $ TOTAL ANNUAL COST FOR 3 YI $ TOTAL ONE TIME COST/VALUE $ TOTAL SALVAGE VALUE $ $ $ $ $ $ $ NET COST OF OPTION $ $ $ $
