Reference no: EM131977669

Question: Gas-electric (so-called hybrid) vehicles save on gasoline consumption by shutting off the vehicle's engine while idling, giving the vehicle a boost of electric power during acceleration, and capturing electrical energy while braking. In addition to environmental benefits, the primary monetary benefit to the owner is reduced fuel cost as a result of improved gas mileage. The trade-off, however, is that the purchase price of the hybrid vehicle is higher than that of a standard gasoline-only fueled vehicle.

Consider a hybrid vehicle with a sticker price of BD31,500. This vehicle will average 30 miles per gallon of gasoline. A tax credit of BD1,500 for the hybrid vehicle effectively reduces its sticker price of BD30,000. A comparably equipped gasoline-only vehicle will cost BD28,000 and will average 25 miles per gallon of gasoline. Assuming an interest rate of 3% per year and a study period of five years, find the breakeven cost of gasoline (BD/gal) if the vehicle will be driven 18,000 miles each year.