Question

Suppose you are thinking of buying a new car. One of the choices you are considering is a hybrid car. This hybrid model car is $9,000 more expensive than a traditional model; however, the hybrid model will get 40 miles per gallon of gas as compared to 30 miles per gallon for the traditional model. You expect the cost of gas to hover around $3.60 in the foreseeable future.

Given the information above and your knowledge of CVP, answer the following three questions:

1. How would you use CVP concepts to determine which car is a better deal, making a strictly numeric decision (make sure to use CVP terminology and analysis, showing your understanding of these, in your response)?

2. Having conducted the analysis above, following strictly numerical parameters, which car would you buy and why?

3. Can you think of any non-numerical considerations that you or another prospective buyer of the hybrid model may/should consider? List as many of these as come to mind and give an opinion as to their validity/weight in the purchasing decision. Would they change your purchase decision?

Answer 1

Hybrid model car is more expensive = $9,000

Hybrid model will get per gallon of gas = 40 miles

Traditional mode per gallon for = 30 miles

Expect the cost of gas to hover around = $3.60

Now we got all the data of hybrid model car and traditional model car.

Now calculating gas of gas per miles

Hydrid model =  Expect the cost of gas / Hybrid model will get per gallon

=$3.6 / 40

= $0.09

Traditional model =  Expect the cost of gas / Traditional mode lper gallon.

=$3.6 / 30

= $ 0.12

For better understanding

Gas per cost
Hybrid car	=$3.6 / 40	$0.09
Traditional car	=$3.6 / 30	$ 0.12

Calculating cost of both vehicles

= price / both mile price

= $9,000/ ( $ 0.12 - $0.09)

= $9,000/ 0.03

Cost of both vehicles =300000.

Question 1

Ans. From the above calculating we can state that cost of both hybrid and traditional cars at miles 300000 both vehicles cost equal

Question 2

Ans.If we try to continue run the hybrid car above 300000 miles of hybrid car is more than traditional car. traditional car cost will be very low.

Question 3

Better to buy hybrid car because it can run above 300000 miles

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