Team Project #4 (20 points) Least-Cost Investment Decision You are considering the purchase of a new vehicle. There are two options for the auto acquisition: a traditional gas- powered auto or a hybrid auto. Based on the information provided below and using net present value (NPV), you will be evaluating the two options and making a recommendation. Note: this scenario is a least cost decision. Since the decision to buy a car will only involve costs, you will be choosing the option with the highest NPV (which in this case, will be the project with the LEAST negative NPV). The assumed discount rate is 10%. Traditional Gas-Powered Auto: Project Life: The autos are going to be kept for 7 years before being sold. Cost of Auto: $18,000 Annual Maintenance Cost: Each year, maintenance costs will be a fixed S300. Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 30 miles to the gallon. The auto is to be driven 16,000 miles per year. Salvage Value: The car has an estimated salvage value of $4,000 at the end of 7 years. Hybrid Auto: Project Life: The autos are going to be kept for 7 years before being sold. Cost of Auto: $24,000 Annual Maintenance Cost: Each year, maintenance costs will be a fixed S450 (hybrid maintenance costs are higher due to more complex technology). Gas Cost: The cost of gas is estimated to be an Traditional Gas-Powered Auto: Project Life: The autos are going to be kept for 7 years before being sold. Cost of Auto: $18,000 Annual Maintenance Cost: Each year, maintenance costs will be a fixed $300. Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 30 miles to the gallon. The auto is to be driven 16,000 miles per year. Salvage Value: The car has an estimated salvage value of $4,000 at the end of 7 years. Hybrid Auto: Project Life: The autos are going to be kept for 7 years before being sold. Cost of Auto: $24,000 Annual Maintenance Cost: Each year, maintenance costs will be a fixed S450 (hybrid maintenance costs are higher due to more complex technology). Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 55 miles to the gallon. The auto is to be driven 16,000 miles per year. Salvage Value: The car has an estimated salvage value of $7,000 at the end of 7 years. Tax Credit: The US government encourages the purchase of more fuel-efficient autos, and has offered a $1,000 tax credit in the year of purchase of a qualifying vehicle. Note: The tax credit represents a cash inflow, as it represents cash saved on taxes. Assume the tax credit is taken at the END of the first year of ownership. Required: 1) Calculate the NPV for both auto purchases. 2) Make a recommendation for which car you would purchase. Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 30 miles to the gallon. The auto is to be driven 16,000 miles per year. Salvage Value: The car has an estimated salvage value of $4,000 at the end of 7 years. Hybrid Auto: Project Life: The autos are going to be kept for 7 years before being sold. Cost of Auto: $24,000 Annual Maintenance Cost: Each year, maintenance costs will be a fixed S450 (hybrid maintenance costs are higher due to more complex technology). Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 55 miles to the gallon. The auto is to be driven 16,000 miles per year. Salvage Value: The car has an estimated salvage value of $7,000 at the end of 7 years. Tax Credit: The US government encourages the purchase of more fuel-efficient autos, and has offered a $1,000 tax credit in the year of purchase of a qualifying vehicle. Note: The tax credit represents a cash inflow, as it represents cash saved on taxes. Assume the tax credit is taken at the END of the first year of ownership Required: 1) Calculate the NPV for both auto purchases. 2) Make a recommendation for which car you would purchase. 3) Assume gas prices rise to an average of $4.50 per gallon. Recalculate the NPVs and make a recommendation Verizon 12:09 AM 20% Done Team Project #4 - Group 4.xlsx Gas - $3.30 gal Gas $4.50 gal Tradition Gas Howie Aute IL RR www MWh Hyre Ce PV Factor - > Amount -18000 -300 -3400 4,000 4842 Por Cash Flow -18000 -1460.33 7 years - 11684.21 7 years 2052.64 years 4.86942 unity 1% tunity 10% single 0.51316 -29092.09 houtflows negative and intlows positive PV Factor 1 $ Amount -24,000 1,000 -450 0.90909 PV of Cash Flow 34000 909. -2190,797 years -612.2017 years 3392.12 years - 4,06842 4.84842 U.S1316 10% unity 106 unity 10% single an 7,000 -28062.73 hollows negative and inflows positive to become the stess

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