What would the breakeven gasoline price

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Question - In June 2008, when gasoline prices were at an all-time high (more than $3.27 per gallon), Chrysler Motor Company promoted its Jeep vehicle with the offer of either $2,750 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.25 per gallon of gas for the next 3 years (the details of the guarantee could vary by dealer).

Required -

1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase, you expected gasoline prices to average $4.27 per gallon over the next 3 years. How many miles would you have to drive the vehicle in the next 3 years to make the guarantee more attractive than the $2,750 discount?

2. Assume the same information as in requirement 1, except the average price of gas for the next 3 years is not known and you are likely to drive 6,250 miles per year. What would the breakeven gasoline price in the coming 3 years need to be to make you indifferent between the two options?

Reference no: EM132895423

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