Chapter 15, Problem 15.44ACT

Sustainability and investment choices

Increasingly, there are calls to manufacture hybrid or electric cars. Businesses and individuals purchase these cars to be environmentally friendly. However, there is an ongoing debate about whether these hybrid or electric cars are truly more environmentally friendly than the traditional gas-engine models and whether the additional upfront cost of the hybrid or electric model is offset by the fuel savings.

Requirements

1. 1. Divide your team into two groups, the Traditional subgroup and the Hybrid subgroup. Select a car that comes in both a traditional gas-engine model and a hybrid model (for example, the Honda Civic comes in both a gas-engine model and a hybrid model). Make the assumption that the vehicle will be driven for five years and the annual miles driven will be 12,000 miles. Also, before going any further, as a group, decide upon an estimate for the cost per gallon of gas.
   1. a. The Traditional group should investigate the initial cost of the traditional gas-engine model. Include tax and title costs. This group should also estimate the annual fuel cost to operate this vehicle. Calculate the present value of the cost of this vehicle (include the initial cost and the annual fuel costs). Use a discount rate of 6%.
   2. b. The Hybrid group should investigate the initial cost of the hybrid model. Include tax and title costs. This group should also estimate the annual fuel cost to operate this vehicle. Calculate the present value of the cost of this vehicle (include the initial cost and the annual fuel costs). Use a discount rate of 6%.
2. 2. The groups should compare the costs of the two models. After comparing the costs, each group should:
   1. a. Research the environmental issues associated with the two car models. Formulate arguments to support your group’s car model (either traditional gas-engine or hybrid).
   2. b. Debate which model is more desirable for businesses to purchase and why. Be specific in your reasoning. Cite your sources.

At the conclusion of the debate, as a team, make a recommendation as to which model of car (traditional gas-engine or hybrid) a typical organization today should purchase and why. Write up your conclusions in a one- to two-page paper.