Reduced fuel cost as a result of improved gas mileage

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Reference no: EM131215908

Gas-electric (so-called hybrid) vehicles save on gasoline consumption by shut-ting off the vehicle's engine while idling, giving the vehicle a boost of electric power during acceleration, and capturing electrical energy while braking. In addition to environmental benefits, the primary monetary benefit to the owner is reduced fuel cost as a result of improved gas mileage. The trade-off, however, is that the purchase price of the hybrid vehicle is higher than that of a standard gasoline-only fueled vehicle. Consider a hybrid vehicle with a sticker price of $31,500. This vehicle will average 30 miles per gallon of gasoline. A tax credit" of $1,500 for the hybrid vehicle effectively reduces its sticker price to $30,000. A comparably equipped gasoline-only vehicle will cost $28,000 and will average 25 miles per gallon of gasoline. Assuming an interest rate of 3% per year and a study period of five years, find the breakeven mileage if gasoline cost $3.50/gallon.

a. 18,715

b. 24,700

c. 29,300

d. 30,300

Reference no: EM131215908

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