Overview

The main goal of this course is to provide you with the skills necessary to 1) evaluate projects using a systematic economic analysis technique, 2) support your recommended alternative with data, and 3) convey your recommendation in a professional manner. This project will allow you to practice these skills in a real-life situation.

The Project

Each student will analyze the purchase decision: should you buy a traditional automobile or a "hybrid or electric" vehicle? Each student will choose two specific vehicle models to compare: one traditional gasoline-powered automobile and one hybrid/electric model. For instance, you might compare the purchase of a Chevrolet Bolt to a Chevrolet Trax. You should choose comparable vehicles in terms of size, functionality, and class; for instance, a large SUV and compact car are not comparable! Assume you purchase the vehicle on July 1, 2021 and dispose of it (sell or trade) at the end of 5 years, on June 30, 2026. The objective is to project all cash flows and perform a comprehensive economic analysis to determine the preferred vehicle. To perform the analysis, you will need to research the chosen vehicles and obtain information regarding all associated costs such as purchase price, maintenance, fuel, taxes and insurance. Estimates and educated guesses are ok!

The objectives of the project are to: Estimate cash flows associated with vehicle purchase, ownership, and disposal. Perform a comprehensive economic analysis using the systematic economic analysis technique. Formulate a recommended action based on sound data and analysis.

The Analysis

1. Determine the alternatives you will compare. Which two specific vehicles will you compare?

2. Determine estimated cash flows for all expenses associated with the purchase, ownership, and disposal of each vehicle (payments, gasoline or other fuel, maintenance, tires, insurance, personal property tax, sales tax, salvage value, etc.). Consider how you will pay for the vehicle: with cash, lease, bank loan, dealer financing. What about reliability and expected repair costs with or without warranty coverage? You will find a great deal of information on the internet, though make sure you use reliable sources and cite them. Use actual values whenever possible, make estimates when necessary. You will need to make some assumptions to complete the analysis. For instance, you must estimate how many miles the vehicles will be driven each year. Be sure to clearly identify all assumptions and support your values with reasoned explanations. You should present your cash flow estimates in a professional manner...present your cash flow estimates in the spreadsheet. (You may find it useful to divide your cash flows/expenses into categories; for instance 'purchase', 'operating and maintenance', etc.)

3. Using the Systematic Economic Analysis Technique (7 steps) as a framework, complete the economic analysis of the two vehicles. Use the cash flow estimates from 2. above and compare the alternatives using two or more calculation methods (i.e. PW and AW). Recommend your preferred vehicle based on your economic analysis and other relevant considerations.

1 Alternatives to compare: Alternativ e 1 Insert make/model/year of vehicle Alternativ e 2: Insert make/model/year of vehicle 2 Estimate cash flows for purchase/use/disposal of each altenrative Alternativ e 1 Fuel (gas Personal or Maintena Property Salvage year Pruchase electric) Ince Tires Insurance Tax Sales Tax value Other 0 2 3 4 5 Alternativ e 2 Fuel (gas Personal or Maintena Property Salvage year Pruchase electric) nce Tires Insurance Tax Sales Tax value Other 0 1 2 3 A 5 Include source of data and assumptions realted to each cost category: 3 Compare Alternatives NOTE: Use cash flow value estimates above to calculate at least two measures of worth (i.e. PW, AW). Then recommend preferred vehicle based on economic analysis. What other factors might you consdier in making this decision