Janice decided to purchase a new automobile. Being concerned about environmental issues, she is leaning toward the hybrid rather than the gasoline only model. Nevertheless, as a new business school graduate, she wants to determine if there is an economic justification for purchasing the hybrid, which costs $1,200 more than the regular model. She has determined that city/highway combined gas mileage of the hybrid and regular models are 30 and 24 miles per gallon respectively. Janice anticipates she will travel an average of 10,000 miles per year for the next several years. Gasoline cost is $3.00

Present Value of $1

Period

4%

1

0.96154

2

0.92456

3

0.88900

4

0.85480

Assuming that Janice plans to keep the car about 5 years and does not believe there will be a trade-in premium associated with the hybrid model, determine the net present value of the incremental investment at 4 percent time value of money.