Question: I need help solving NPV and IRR for two car models. I tried to do the NPV and IRR for the Hybrid model but I
I need help solving NPV and IRR for two car models. I tried to do the NPV and IRR for the Hybrid model but I don't know if it is correct because I got negative numbers. Please use the formula to calculate answers.
| 2022 Honda Civic | 2022 Honda Civic Hybrid (Insight) | |
| 1a. Cost to purchase | $22,359 | $27,498 |
| 1b. Miles per gallon | 33 (city) | 55 (city) |
| 2a. Estimated number of miles driven each year | 13,500 | 13,500 |
| 2b. Cost of of fuel per tank: | $43.77 | $37.42 |
| Tank size | 12.4 gallons | 10.6 gallons |
| Current gas prices | $3.53/gallon | $3.53/gallon |
| 3a. Total cost of gas for one year | $1,444.10 | $866.45 |
| work | (13,500 miles per year/33 mpg) x $3.53/gallon | (13,500 miles per year/ 55 mpg) x $3.53/ gallon |
| 3b. Annual fuel savings | -- | $577.65 |
| work | -- | ($1,444.10- $866.45) |
| 4. NPV for 10 years | -$27,275.29 | |
| work | $577.65/ (1+ 0.10)^10 - $27,498 | |
| 5. IRR for 10 years | -21.49% | |
| work | 0 = $577.65/ (1+ IRR)^10 -$27,498 |
Use the above information to answer the following questions:
4a. Calculate the NPV of the hybrid model, using the annual fuel savings as the annual cash inflow for the 10 years you would own the car. Assume discount rate is 10%
4b. Calculate the NPV for the gas model (2022 Honda Civic) for the 10 years you would own the car. Assume discount rate is 10%.
5a. Calculate the IRR of the hybrid model, using the annual fuel savings as the annual cash inflow for the 10 years you would own the car.
5b. Calculate the IRR for the gas model (2022 Honda Civic) for the 10 years you would own the car.
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