Free Traditional vs Hybrid Car Purchase Analysis Calculator released on 11/12/2010

This free Traditional vs Hybrid Car Purchase Analysis Calculator is built to help you find out which car you should purchase by examining net present value (NPV) of the two purchase options.

You are considering the purchase of a new vehicle. There are two options for the auto acquisition: a traditional gas-powered car or a hybrid car. Based on the information provided below and using net present value (NPV), you will be evaluating the two options and making a decision. This scenario is a least cost decision. Since the decision to buy a car will only involve costs, you will be choosing the option with the highest NPV (which in this case, will be the project with the LEAST negative NPV). The assumed WACC (weighted average cost of capital or NPV discount rate) is 10%.

Traditional Gas-Powered Car:

  • Project Life: The autos are going to be kept for 7 years before being sold.
  • Cost of Auto: $18,000
  • Annual Maintenance Cost: Each year, maintenance costs will be a fixed $300.
  • Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 30 miles to the gallon. The auto is to be driven 16,000 miles per year.
  • Salvage Value: The car has an estimated salvage value of $4,000 at the end of 7 years.

Hybrid Car:

  • Project Life: The autos are going to be kept for 7 years before being sold.
  • Cost of Auto: $24,000
  • Annual Maintenance Cost: Each year, maintenance costs will be a fixed $450 (hybrid maintenance costs are higher due to more complex technology).
  • Gas Cost: The cost of gas is estimated to be an average of $3.30 per gallon over the next 7 years. The auto gets an average of 55 miles to the gallon. The auto is to be driven 16,000 miles per year.
  • Salvage Value: The car has an estimated salvage value of $7,000 at the end of 7 years.
  • Tax Credit: The government encourages the purchase of more fuel-efficient autos, and has offered a $1,000 tax credit in the year of purchase of a qualifying vehicle. Note: The tax credit represents a cash inflow, as it represents cash saved on taxes. Assume the tax credit is taken at the END of the first year of ownership.

What this calculator can do:

  • 1) Calculate the NPV for both purchase options.
  • 2) Make a recommendation for which car you should purchase based on NPV of both purchase options.
  • 3) You can change gas prices etc, the calculator will recalculate the NPVs and make a new recommendation.

You can download the Free Traditional vs Hybrid Car Purchase Analysis Calculator from Investment Property calculator.

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