Consider the 2015 Hibrid, which has a list price of $5,450 more than a Sedan. Additionally, the annual ownership costs (other than fuel) for the hybrid are expected to be $400 more than the traditional sedan.

The EPA mileage estimate is 28 miles per gallon (mpg) for the hibrid and 23 mpg for the sedan.

Assume that the appropriate interest rate is 10%.

You plan to keep both cars for six years.

The resale value after six years is the same for both cars. For household consumption, depreciation is not allowed and there is no tax deduction for expenses.

1. Assume that gasoline costs $5.20 per gallon. How many miles per year would you need to drive to make the decision to buy the hibrid worthwhile in terms of NPV?

2. If you drive 15,000 miles per year, what price per gallon would make the decision to buy the hibrid worthwhile in terms of NPV.