(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest rate, what should Stu do? Year Costs if Hybrid Bought Costs if Standard Bought -$27,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -$22,500 -2,890 2,890 -2,890 -2,890 -2,890 -2,890 1. 2. 3 4 6. Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid. O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid. O Buy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard. Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.
(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest rate, what should Stu do? Year Costs if Hybrid Bought Costs if Standard Bought -$27,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -$22,500 -2,890 2,890 -2,890 -2,890 -2,890 -2,890 1. 2. 3 4 6. Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid. O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid. O Buy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard. Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual
fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has
better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest
rate, what should Stu do?
Year
Costs if Hybrid Bought Costs if Standard Bought
-$27,000
-2,000
$22,500
-2,890
-2,890
-2,890
-2,890
-2,890
-2,890
2.
-2,000
-2,000
-2,000
-2,000
3
4
6
-2,000
Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid.
O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid.
OBuy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard.
Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.
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