Casey must determine if it is economically preferable to use higher octane gasol
ID: 2500642 • Letter: C
Question
Casey must determine if it is economically preferable to use higher octane gasoline in his new car, The higher octane gas has a cost of $0.220/gallon higher than that of the low octane gas . Casey uses approximately 500gallons of gas per year. He believes that if he uses the higher octane gas, he will extend the life of her car by one year (from a useful life of nine year to a usefull life of ten years), His car has an initial cast of $22,000 and an assumed salvage value of $0. Given aninterest rate of 8% compounded annually, should casey use the higher octane gasExplanation / Answer
Answer:
Casey use per year = 500 Gallons per year
= 500 * $ 0.20 = $ 100
$ 100 casey has to pay per year to extend one year of life
Casey no need to use the higher octane gas. Unless engine is knocking buying higher Octane gasoline is a waste of money.It can add up to $ 100 or more a year in extra cost. Higher Octane gasoline is not make car performance better, go faster, get better milege. best way is listen to owner manual.
The only time might need to switch to a higher levels is if your car engine knocks when use the recommended fuel.This happens to a small percentage of car.