You can choose between an electric vehicle that requires very high upfront costs, a somewhat cheaper hybrid
Question:
You can choose between an electric vehicle that requires very high upfront costs, a somewhat cheaper hybrid vehicle and a traditional gasoline powered vehicle. Your discount rate for future cash flows is 10%.
The upfront cost of each car is:
Electric: $80,000
Hybrid: $60,000
Gas: $45,000
In the first year you estimate the running costs (including fuel, insurance, maintenance etc.) to be:
Electric: $2,000
Hybrid: $5,000
Gas: $7,500
You assume that these costs will increase at an inflation rate of 5%. That is, year 2 costs will be 5% higher than year 1 costs and year 3 costs will be 5% higher than year 2 costs.
You plan to keep the car for 10 years. For each car, calculate the present value of your costs. Which one ends costing less in present value terms?
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr