Page 1 of 2 ISSN 1940-204X Daddy Wants a Diesel or Does He? Kenneth D. Machande Woodrow D. Richardson University of Mary Washington University of Mary Washington INTRODUCTION The engine choices were a 3.6-liter V6 rated at 295 horsepower, a 3.0-liter diesel V6 rated at 240 horsepower, or a 5.7-liter V8 rated at Rebecca shook her head and gave a loud sigh as she hung up the 360 horsepower. All of the trucks were capable of pulling Jim's boat, phone from talking with her dad. a 17-foot Carolina Skiff that weighed just short of 1,500 lbs. including "What is it?" her roommate Claire asked. the boat, motor, and gear. "Per usual, Daddy Jim wants me to use my 'schooling,' as he Vehicle mileage was one issue at hand, as well as Jim's driving likes to call it, to help him decide whether to buy a new crew cab habits. The V6's Environmental Protection Agency (EPA) rating truck with either a diesel or a gas engine," Rebecca replied. was 17 city miles per gallon (MPG) and 25 highway MPG, while "Well, maybe he will forget all about it if you just wait him the diesel was rated 21 city MPG and 29 highway MPG. The V8 out," Claire offered. was rated at 15 city MPG and 22 highway MPG. The manufacturer "Oh no, you do not know him like I do. He will expect a full suggested 89 octane fuel for the V8, but Jim indicated he would analysis, or I will never hear the end of it!" use 87 octane unless engine pinging became pronounced. The "Well, maybe you will think twice before bragging to him about manufacturer's "Build and Price" feature indicated that the V6 your examination scores in accounting after this," Claire said. came standard, but the diesel was a $4,270 option, and a V8 was a "You got that right! I will have to get on it right after my last $1,250 option. final, or there will be no peace over break," Rebecca responded. GAS AND DIESEL PRICES THE MODELS AND ENGINES In his e-mail to Rebecca, Jim said diesel usually ran $0.25 more per Rebecca opened the last e-mail from her dad to find the following gallon than unleaded gas. He was not sure whether this was accurate information he compiled about the purchase decision. Jim made it but thought it was in the ballpark. Rebecca wondered about this, quite clear that he wanted a 4 x 4 to be able to get his boat up the since she had never paid attention to diesel prices in her own trips steep, sandy ramp he used most frequently. His friend, Kashef, to fill up. She decided to check the price differential by visiting the had a late-model truck that impressed Jim very much. Any truck U.S. Energy Information Administration website. See Table for the in this class that he chose would offer standard equipment, which information she found. is a huge step up from the 2012 Scion iO he had bought when gas Without computing the averages, she noticed there was a surged in 2012. However, Jim was not sure whether getting the premium for diesel compared with regular gasoline, as reported by standard engine (the V6), or paying extra for the V8 or Diesel made the U.S. Energy Information Administration averages." Jim's estimate any sense. That is where Rebecca came in. of $0.25 appeared a bit high. She noted that she could obtain more "Weekly Retail Gasoline and Diesel Prices," U.S. Energy Information Administration, Released February 2, 2018, www.cia. gov/dnav/pct/PET PRI GND DCUS NUS Whom IMA EDUCATIONAL CASE JOURNAL 1 VOL. 11. NO. 1. ART. 3. MARCH 2018 @2018 IMA hpPage 2 of 2 specific fuel price information based on geographic location. But 3.75% per year, which was in-line with the Wall Street Journal there was also an issue of whether the area where Jim drives was in an area requiring reformulated or conventional fuel. Because she lacked Prime Rate. Because of his thriftiness, Jim had accumulated enough wealth to pay cash for the purchase of the new car specific details and needed to get to a review session for intermediate without affecting his or Rebecca's mom's lifestyles. class, Rebecca decided to use the U.S. averages. CONCLUSION DRIVING HABITS A car horn startled Rebecca out of her automotive ruminations. Rebecca did not need an e-mail to tell her about Jim's driving She motioned to her roommate that she will be out in a minute habits. He had recently commented that his current Scion for their well-deserved, end-of-semester dinner. Rebecca knew i@ had topped 100,000 miles after five and a half years of she would need to put her thoughts into a more usable format ownership. He bought that car as a reaction to the spike in fuel before heading home over break. So diesel got better mileage, prices in 2012 and regretted his decision ever since. but it costs more per gallon and was a large additional cost at Rebecca suspected that the miles he drove per year had declined the time of purchase. This would require more than an armchair some since she and her siblings had gone off to college more than approach. Did she have all the information she needed to three years ago, even though they usually refused to ride in his car, perform her analysis? What approach should she use to give her because, frankly, it was embarrassing. As Rebecca graduated and dad the best information to make a decision? went off to college and with her siblings in the Peace Corps overseas, Jim would not have to drive them around anymore, thereby reducing QUESTIONS: his mileage. Rebecca also knew that Jim and her mother would take driving vacations as they became empty nesters. She decided that 1. What data does Rebecca need to help perform the analysis Jim would continue to drive approximately 18,000 miles per year for for her dad? the foreseeable future. Her best guess was that 60% of his driving 2. What assumptions should she use in her calculations? was highway miles, while 40% were driven in the city. 3. What technique should Rebecca use to solve this problem? Jim had been very thrifty throughout his life. He was a very 4. What might Rebecca's solution look like? cautious investor, even more so now that he was getting older. 5. What recommendation should Rebecca make? How should During Rebecca's last trip home, he had said that he thought it be presented to Jim? he could continue to earn a return on all of his investments of Gasoline and Diesel Prices per Gallon, September 2016 to February 2017 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 2.327 2.359 2.295 2.366 2.458 2.416 Average U.S. Gasoline Prices, All Grades 2.394 2.454 2.439 2.51 2.58 2.568 Average U.S. Diesel (Highway) Prices, All Types Adapted from: "Weekly Retail Gasoline and Diesel Prices, " U.S. Energy Information Administration, Released February 2, 2018, www.cia.gov/dnav/pet/PET_PRI_GND_DCUS_NUS_W.htm hp