What is the minimum gas price

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Reference no: EM13756721

1. Current MSRP of Toyota Prius is $24,200 and the MSRP for Corolla is $16,950. 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 28/37. The gas price currently is $2.5/gallon and you anticipate that it will go up in the future simultaneously with the inflation rate of 2% annually. Your opportunity cost is 7.5% and you will pay for either one of the two cars in cash. Assume that you will drive 15,000 miles a year with a total of 90,000 miles in six years.

Calculate the minimum gas price that justifies the premium paid for the Prius assuming that you will drive your car in town.

Reference no: EM13756721

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