Engineering Econ: Recently, you were in a car crash and are looking to decide whether to purchase a gas-powered Toyota RAV4 or the RAV4 hybrid that uses both gasoline and electric power. The traditional, gas-powered RAV4 sells for $26,000 and gets 22 miles per gallon (mpg) of fuel. The hybrid vehicle sells for $32,000 and averages 34 mpg. The resale value of the hybrid RAV4 is $4,000 more than that of the traditional RAV4 after five years of anticipated ownership. Assume that you badly need a new car (since insurance will only cover a rental for so long), such that both alternatives are acceptable; as such, you can consider the traditional RAV4 the baseline for comparison. If you drive 15,000 miles per year and gasoline costs $2.50 per gallon, what is the annual internal rate of return associated with the incremental investment in the hybrid RAV4? (Express your answer as a percentage, rounded to the nearest tenth of a percent, e.g., 17.5 if you believe the answer is 17.5% per year.)
Engineering Econ:
Recently, you were in a car crash and are looking to decide whether to purchase a gas-powered Toyota RAV4 or the RAV4 hybrid that uses both gasoline and electric power. The traditional, gas-powered RAV4 sells for $26,000 and gets 22 miles per gallon (mpg) of fuel. The hybrid vehicle sells for $32,000 and averages 34 mpg. The resale value of the hybrid RAV4 is $4,000 more than that of the traditional RAV4 after five years of anticipated ownership. Assume that you badly need a new car (since insurance will only cover a rental for so long), such that both alternatives are acceptable; as such, you can consider the traditional RAV4 the baseline for comparison. If you drive 15,000 miles per year and gasoline costs $2.50 per gallon, what is the annual
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 10 images
