Sirene is looking at buying a Toyota Camry, which she intends to own for five years. She has two alternatives: purchasing a hybrid or purchasing a conventional SE version. Each alternative has advantages which make it the vehicle of choice under a set of circumstances. The selection of purchasing a new hybrid Camry or a conventional Camry SE is the topic of this case study.

The criterion you are to use to examine the decision is:

Select the alternative which has the largest amount of money remaining at the end of a $5$ year $($i$.$e$.,60-$month$)$ period. That is$,$ calculate the future value of each option $($which includes the personal investments of left$-$over cash flows and money from selling the vehicle$),$ and select the one with the largest future value.

INFORMATION:

OPTION

DESCRIPTION

Camry Hybrid

Purchase for USD$34,250$; $48-$month fixed rate loan at an annual effective interest rate of $6\mathrm{.}17\%$ or a monthly rate of $0\mathrm{.}5\%$; $20\%$ down payment; salvage value after $60$ months is estimated at USD$15,500,$ fuel economy is $5\mathrm{.}7$L$/100$ km$,$ both city and highway.

Camry SE

Purchase for USD$30,500$; $48-$month fixed rate loan at an annual effective interest rate of $6\mathrm{.}17\%$ or a monthly rate of $0\mathrm{.}5\%$; $20\%$ down payment; salvage value after $60$ months is estimated at $$15,400,$ fuel economy is to $9\mathrm{.}8$L$/100$ km city and $6\mathrm{.}5$L$/100$ km highway.

Other necessary information:

To help with the economics of purchasing a hybrid, the Government provides a USD$1,500$ fuel efficiency rebate. If Sirene were to purchase the Camry Hybrid, she would receive the rebate cheque in the sixth month after purchase.

Sirene has set aside USD$7,500$ for period zero expenses;

Sirene has budgeted USD$1,340$ of her monthly income to loan payments, insurance and registration payments, and gas payments;

Monthly licence and registration fees equal $$96$ for the Camry Hybrid and $$100$ for the Camry SE$.$

For simplicity let$$s assume that Sirene would purchase a $5-$year all inclusive warranty package for either car and the cost of this option has been included in the overall cost of the cars.

Any money not spent will be invested and can earn an effective annual interest rate of $3\mathrm{.}04\%$ or a rate of $0\mathrm{.}25\%$ per month compounded monthly.

Sirene has estimated that she would be driving $19,000$km each year with a mix of $55$ percent city and $45$ percent highway driving.

Sirene has determined from her father, an oil & gas futures trader, that gasoline prices will remain constant at USD$1\mathrm{.}2$ per litre over the next $5$ years.

Answers $($Enter numbers to the closest cent and do not put comma separators or dollar signs in your answers$)$:

$($a$)$ What is the monthly loan payments $($for months $1$ through $48)$ for the Camry SE$?$

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$($b$)$ What is the monthly loan payments $($for months $1$ through $48)$ for the Camry Hybrid?

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$($c$)$ What is the monthly fuel cost for the Camry SE$?$

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$($d$)$ What is the monthly fuel cost for the Camry Hybrid?

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$($e$)$ Fill in the following table of monthly cashflows $($i$.$e$.,$ amount of money that is deposited in the bank after all expenses are paid$)$:

Period Camry SE Camry Hybrid

$0$

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$1$ through $48,$ but not $6$ for hybrid

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$6$ for hybrid

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$49$ through $59$

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$60$

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$($f$)$ Future value of bank account with the Camry SE option?

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$($g$)$ Future value of bank account with the Camry Hybrid option?

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$($h$)$ The car that should be chosen based on your economic evaluation is $($enter either SE or Hybrid in your answer only$)$

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