Payback Period and NPV of Alternative Automobile Purchase

Wendy Li decided to purchase a new Honda Civic. Being concerned about environmental issues she is leaning toward a Honda Civic Hybrid rather than the completely gasoline$-$powered LX model. Nevertheless, she wants to determine if there is an economi justification for purchasing the Hybrid, which costs $$4,700$ more than the LX$.$ Based on a mix of city and highway driving she predicts that the average gas mileage of each car is $40$ MPG for the Hybrid and $30$ MPG for the LX$.$ Wendy also anticipates she wil drive an average of $12,000$ miles per year and that gasoline will cost an average of $$3\mathrm{.}25$ per gallon over the next four years. She also plans to replace whichever car she purchases at the end of four years when the resale values of the Hybrid and the LX are predicted to be $$12,000$ and $$8,500$ respectively.

Required

a$.$ Determine the payback period of the incremental investment associated with purchasing the Hybrid.

Round answer to one decimal place.

years

b$.$ Determine the net present value of the incremental investment associated with purchasing the Hybrid at a ten percent time value of money.

Use a negative sign with your answer, if appropriate. Round answer to the nearest whole number.

c$.$ Determine the cost of gasoline required for a payback period of three years on the incremental investment.

Round answer to two decimal places