With gasoline prices at $ 3.00 per gallon, consumers are flocking to purchase hybrid vehicles (combination of gasoline and electric motors) that get 50 miles per gallon of gasoline. The monthly payment on a three- year lease of a hybrid is $ 499 compared to $ 399 per month on a conventional, equivalent traditional gasoline car that gets 25 miles per gallon. Both vehicles require a one- time $ 1,500 payment for taxes, license, and dealer charges. Both vehicles have identical lease terms for the residual value, maximum number of miles allowed without penalty, and so forth.

a. Calculate how many miles the consumer must drive per year to make the hybrid the economical choice over the conventional gasoline- only vehicle.
b. How does your answer to part (a) change if the price of gasoline is $ 4.00 per gallon?

  • CreatedDecember 15, 2014
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