€ 8.39

A12-65 Evaluating the Purchase of an Asset with Various Capital Budgeting Methods

In this Capital Budgeting Activity, you will be evaluating whether you should purchase a hybrid car or its gasoline-engine counterpart. Select two car models that are similar, with one being a hybrid model and one being the non-hybrid model. For example, the Honda Civic is available as a hybrid or a gasoline-engine model. Use the Federal Reserve Bank Prime Loan rateLinks to an external site. for your discount interest rate. Assume that you plan on keeping your car for 10 years and that the resale value of both models will be negligible. Assume the loan period is for 10 years as well.



Research the cost of each model (include estimated taxes and title costs). Also, obtain an estimate of the miles-per-gallon fuel efficiency of each model.
Estimate the number of miles you drive each year. Also, estimate the costs of a gallon of fuel.
Given your previous estimate from 1 and 2, estimate the total cost of driving the hybrid model for one year. Also, estimate the total cost of driving the non-hybrid model for one year. Calculate the savings offered by the hybrid model over the non-hybrid model.
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.
Compare the NPV of the hybrid model with cost of the cost of the gasoline-engine model. Which model has the lowest NPV? From a financial standpoint, does the hybrid model make sense?
Now look at the payback period of the hybrid model. Use the difference between the cost of the hybrid model and the gasoline-engine model as the investment. Use the annual fuel savings as the expected annual net cash inflow. Ignoring the time value of money, how long does it take for the additional cost of the hybrid model to pay for itself through fuel savings?
What qualitative factors might affect your decision about which model to purchase?

Preview document (1 of 3 pages)

Unlock document

Download all 3 pages for € 8,39

Add document to cart
Report document Report document

€ 8,39

Add document to cart
  • check Money back guarantee
  • check Documents can be downloaded immediately
  • check € 0,50 discount when paying with balance

Specifications

Seller

All Academic Assignments

1271 documents uploaded

41 documents sold


Help in all Courses Dq's,Assignments and MCQS,Midterm & Final Exams(Expert in Commerce field )
Experience: 10 Years in online teaching field.

Earn from your summaries?

icon 2

Do you make summaries or do you have any completed assignments? Upload your documents to Knoowy and earn money.

Upload document
Log in via e-mail
New password
Subscribe via e-mail
Sign up via Facebook
Shopping cart

Deal: get 10% off when you purchase 3 or more items!

Deal: get 10% off when you purchase 3 or more items!

[Inviter] gives you € 2.50 to purchase summaries

At Knoowy you buy and sell the best studies documents directly from students.
Upload at least one item, please help other students and get € 2.50 credit.

Register now and claim your credit