HOMEWORK HELP:

1. Please describe the two vehicles that you are comparing - make, model, etc. What is the price of each? (Be sure that the cars are both made by the same manufacturer, such as Ford, and that they are the same model, such as both Fusions. As much as possible, try to choose the same engine power and options packages.)

2. What is the mileage rating on each vehicle? As I mentioned above, you can use the city or highway, depending upon the assumption that you think that is most relevant for you. (A mileage rating would be expressed in miles per gallon.) 3. If you were to own a vehicle, how many miles do you think that you'd drive in an average year? 4. Assuming that the average cost of gasoline over the next 10 years is $3.00 per gallon, what would your average fuel cost be each year from owning a hybrid? (To calculate this, you need to divide your miles per year by the mile per gallon rating to calculate the number of gallons of gas you would use in a year. Then multiply this by the cost per gallon.) Please perform the same calculation for a traditional vehicle. Show your work! 5. What is the present value of the fuel costs (from step 4) if you buy a hybrid vehicle? Similarly, what is the present value of the fuel costs if you buy a traditional gasoline engine vehicle? Assume a relevant rate of 6%. (Please think about what you have learned about the time value of money and consider the appropriate calculation to make here. Remember, you're not buying all the gas at the end of the car's life, but using the calculation from #4 as an annual cost.) 6. What is the present value of buying a traditional vehicle? What is the present value of buying a hybrid model? (Remember that the total cost is the purchase price plus the cost of gasoline over the vehicle's life.) 7. Given the differences in purchase price and fuel costs, does it make sense for you to buy a hybrid? 8. Are there other factors that should be considered in your purchase decision?

"To start, find the price for a similarly equipped 2020 gasoline and the hybrid vehicle in the same make and model. (Please be sure that its the same car dont compare a Honda to a Hyundai or an Accord to a Civic.) In almost every case, the hybrid car is going to be more. Now, take note of the gas mileage for each of the two vehicles. In most cases, the mileage is provided both for city and highway. You may choose either, but be consistent for both. We are going to assume that both vehicles will last 10 years and have no residual value. Now you're ready to start your analysis."