Cake j11@ Writing Tutorials age/478 Dry BonesDry Bones W Grammar Tutorials | e T
ID: 2575458 • Letter: C
Question
Cake j11@ Writing Tutorials age/478 Dry BonesDry Bones W Grammar Tutorials | e The Bread Of Life Dai G Google D BeautifulBeautiful I s Auto Zoom light is seven years, should the City finance the investment in LED's at an interest rate of five percent per year? Justify your answer. Payback Period and NPV of a Cost Reduction Proposal-Differential Analysis Hermione decided to purchase a new automobile. Being concemed about environmental issues, she is leaning toward the hybrid rather than the gasoline only model. Nevertheless, as a new business school graduate, she wants to determine if there is an economic justification for purchasing the hybrid, which costs $1,595 more than the regular model. She has determined that city/highway combined gas mile- age of the hybrid and regular models are 30 and 24 miles per gallon respectively. Hermione anticipates she will travel an average of 12,000 miles per year for the next several years. Required a. Determine the payback period of the incremental investment if gasoline costs $2.75 per gallon. b. Assuming that Hermione plans to keep the car about six years and does not believe there will be a LO2, 3,5 E12-26. BC trade-in premium associated with the hybrid model, determine the net present yalue of the incre- mental investment at six percent time value of money c. Determine the cost of gasoline required for a payback period of three years. d. At S4.60 per gallon, determine the gas mileage required for a payback period of three years.Explanation / Answer
The above question will be solved on the basis of incremental profit/loss basis.
Incremental cost = $1595
Incremental savings ( here, cost savings = profit) = 275 (Working note 1)
= 1595/275= 5.8 years
Working Note 1
B. NPV = Present value of cash Inflow(pvci) - Present value of cash outflow (pvco)
= 1352.26419 - 1595 = (242.7358)
C.
Here 100 is the difference between the total gallons required for 12000 miles ( gsoline - hybrid) = 100 gallons
Payback period (PBP) tells us the time in which we can recover our initial cost of investment(incremental)PBP= Incremental cost/incremental cost savings