Question

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 economic justification for purchasing the Hybrid, which costs $5,100 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 will drive an average of 12,000 miles per year and that gasoline will cost an average of $3.30 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.
    Answer

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.
    $Answer

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

   Round answer to two decimal places

   $Answer

  

Answer 1

Mswor ineeraatal Cast d hybid S,loo mikcspe = 2,000 Avcrory Lx madel mes p (N Gasaline ruguind Avexag teary 121000 30 400 Gasofre penses "in a - Gra coline "руiка) xprie d Gasoine 400 x3.30 13a0 ng brid madkl Gacofine reguid AvaYagy mides por years 40 - 300

Gasofine expense s 300 X 3.30 et -990 in Gacoinc Going = 13a0-0 33০ Pay bark pened instiel 'mestmaat Pajac esid ,100 330 poyback poad Net preant velue ne ronuatal salvag value 12000-8500 =3so0

Cash losCummulatir. DEX0 Yeaus L00 5100) 300 330 बन५ (suичо) 0.83 330 241.5 0.75 3 330 ass6.8 (350 3160 a1.7 Npv net pesst valut initialin vestme n S1o0 00 Seving &a Empenss n Gasdine n gallon ing oo u00-300)

00 00 .Pice d Gatone