Justifies the premium paid for the prius

Assignment Help Finance Basics

Reference no: EM13342584

Current MSRP of Toyota Prius is $24,200 and the MSRP for Corolla is $16,800. Both cars share the same size and features, and the only difference is fuel economy. If you are planning on purchasing one of the two cars and keeping it for 6 years, what is the minimum gas price that justifies the premium paid for the Prius?
The estimated mpg for Prius is 51/48 and Corolla is 29/37. The gas price currently is $3/gallon and you anticipate that it will go up in the future simultaneously with the inflation rate of 2.5% annually. Your opportunity cost is 7.5% and you will pay for either one of the two cars in cash.
Note: I need two answers, one if you drive your car mainly on Highways and the other if you drive mainly in town. You will not pay any maintenance for either one of the two cars over the 6-year period.
a. Calculate the minimum gas price that justifies the premium paid for the Prius assuming that you will drive your car in town.
b. Calculate the minimum gas price that justifies the premium paid for the Prius assuming that you will drive your car on highways.
c. Now, we need to know how much you will be saving on your income taxes. The IRS offers a tax credit of $2,200 for qualified hybrid vehicles; the Prius is one of them. Calculate the tax-saving when purchasing the Prius if your income is $55,000 and you are single. Does the tax-saving justify the premium? Combined with you tax savings, what is the minimum gas price that justifies the premium paid for the Prius if used in town or on Highways? (25 points)
The tax rates in 2014
Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $8,925 $0 to $17,850 $0 to $12,750
15% $8,925 to $36,250 $17,850 to $72,500 $12,750 to $48,600
25% $36,250 to $87,850 $72,500 to $146,400 $48,600 to $125,450

Reference no: EM13342584

Questions Cloud

Explain the reaction of 2 methyl 2 octene with hbr : what would be a procedure to go by for the reaction of 2 methyl 2 octene with Hbr and what solvents could be used

Theory of capital structure rests on an assumption : The pecking order theory of capital structure rests on an assumption

Explain what is the vapor pressure of sicl4 in mm : What is the vapor pressure of SiCl4 in mm \ Hg at 31.5 C? The vapor pressure of SiCl4}is 100 mm \ Hg at 5.4 C, and Delta H vap} = 30. kJ/mol

How far apart are the particles from each other : Two particles oscillate in simple harmonic motion with amplitude A, about the centre of a common straight line of length 2A. How far apart are the particles from each other

Justifies the premium paid for the prius : Current MSRP of Toyota Prius is $24,200 and the MSRP for Corolla is $16,800. Both cars share the same size and features, and the only difference is fuel economy. If you are planning on purchasing one of the two cars and keeping it for 6 year..

How much heat energy is required to raise the temperature : The specific heat of a certain type of cooking oil is 1.75 J/(g·°C). How much heat energy is needed to raise the temperature of 2.69 kg of this oil from 23 °C to 191 °C

Prepare the journal entries on the books of pritano : Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2010. It is expected that the earnings target is likely to be met.

Role of organisational behaviour at the company : Importance of company to the Australian and international business landscape and research, analysis and discussion of sustainability related strategies and issues

What is the angular dispersion of visible light : The index of refraction for violet light in silica flint glass is 1.66 and that for red light is 1.61. What is the angular dispersion of visible light

User Account

All Pages