Suppose the McWong family is deciding between two possible new car options for a car to last
Fantastic news! We've Found the answer you've been seeking!
Question:
- Suppose the McWong family is deciding between two possible new car options for a car to last them 15 years: Option A: Toyota RAV4 Hybrid engine Option B: Toyota RAV4 Petrol engine. Each option will provide the same amount of driving benefits over the next fifteen years. The costs, however, differ for each car. Suppose the Hybrid costs $48,000 to purchase plus $1,000 annual servicing plus $1,400 for fuel annually. The petrol engine option costs $44,000 to purchase plus $800 annual servicing plus $2,000 for fuel annually. Fuel costs for each are estimated based on travelling 15,000km annually and paying $2.00 per litre.
- a) Use an 8% discount rate to calculate the Present Value of the costs of the Hybrid and the Petrol and state which option the McWongs should choose.
- b) Now use a 3% discount rate to calculate the Present Value of the costs of the Hybrid and the Petrol and state which option the McWongs should choose.
- c) Describe some characteristics (other than a different discount rate) that might lead to a different family always choosing the Hybrid or always choosing the Petrol.
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
Posted Date: