Question

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.

Required:
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?



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  • CreatedDecember 15, 2014
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