Consider someone who is thinking aboutbuying a new car, and trying to decide which one to buy. They planto use the car mostly for commuting. They live 35 miles from work,and will commute 190 days per year. They know that the cost of gasin the Bay Area is currently around $3.00/gallon, the cost ofelectricity is around $0.15/kWh. For simplicity, they decide toassume that those prices won’t change, and that inflation will bezero, for the next five years. After five years they plan to sellthe car. [20 points]
They have gathered the followinginformation:
| 2017 Toyota
Prius Prime | 2017 Nissan Leaf |
Purchase price | $27,000.00 | $31,000.00 |
Fuel consumption | 56 mpg,
3.5 mi/kWh
(30 percent full electric) | 3.00 mi/kWh |
Resale after 5 years | $12,000.00 | $8,000.00 |
For both cars, they assume that insurance, maintenance, andother costs will be $2000/year. The interest rate is 3.0%/year.
a. Calculate the capital recovery factor. (5points)
b. Which car has the most favorable net present value? Show yourwork for each vehicle. (5 points per car, 10 pointstotal)
c. The U.S. government currently offers a $7,500 federal taxcredit for the Nissan Leaf. Should this change the purchasedecision, assuming the buyer will owe more than $7,500 in taxesduring the purchase year? (5 points)
