Question

Car A initially costs $612 more than car B, but it consumes 0.03 gallon/mile versus 0.05 gallon/mile for B. Both vehicles last 6 years, and B's salvage value is $222 smaller than A's. Fuel costs $2.27 per gallon. Other things being equal, beyond how many miles of use per year does A becomes preferrable to B? (a) For an average of 18,337 miles a year, the annual fuel cost for car A = $ (round to 2 decimal places) (b) For an average of 18,337 miles a year, the annual fuel cost for car B = $ (round to 2 decimal places) (c) Average miles per year for car A to be preferred over car B = 1388 miles/year (round up to the nearest whole number)

Answer 1

a.Annual fuel cost for car A = 18337*0.03*2.27 = $1248.75

Car B = 18337*0.05*2.27 = $2081.25

c.Let the number of miles per year be x

Total Cost under A will equal cost under B at x

0.03*2.27x*6 + 612-222 = 0.05*2.27*x*6

0.4086x + 390 = 0.681x

X = 1431.72 miles a year

i.e. 1432 miles