In June 2008, when gasoline prices were at an all-time high (more than $3.53 per gallon), Chrysler Motor Company promoted its Jeep vehicle with the offer of either $3,200 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.40 per gallon of gas for the next 3 years (the details of the guarantee could vary by dealer).

Required:

1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase, you expected gasoline prices to average $4.64 per gallon over the next 3 years. How many miles would you have to drive the vehicle in the next 3 years to make the guarantee more attractive than the $3,200 discount? (Do not round intermediate calculations. Round your final answer up to the nearest whole number.)

2. Assume the same information as in requirement 1, except the average price of gas for the next 3 years is not known and you are likely to drive 7,000 miles per year. What would the breakeven gasoline price in the coming 3 years need to be to make you indifferent between the two options? (Round your answer to 3 decimal places.)

Answer rating: 100% (QA)

To solve this problem we need to calculate the breakeven mileage and breakeven gasoline price for th... View the full answer