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A 2017 Toyota LE Highlander with AWD sells for $35,100 with 21 mpg city and 27...

A 2017 Toyota LE Highlander with AWD sells for $35,100 with 21 mpg city and 27 mpg highway. Assume the owner drives 10,000 miles per year, half highway and half city and gas sells for $2.50 per gallon. Calculate the present value cost for each car over a 15-year lifetime including purchase in 1 year and operation beginning year 1. r = 0.04

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Answer #1

Investment = 35100

r=4% = 0.04

t = 15 years

Cost/galloon = 2.5

MPG in city = 21

MPG on highway = 27

Owner drives 5000 miles in city and 5000 miles on highway

total Cost of gasoline when driving in city = 5000 * 2.5 / 21 = 595.238

total Cost of gasoline when driving on highway = 5000 * 2.5 / 27 = 462.962

Annual gas cost = 595.238+462.962 = 1058.20

Present value of cost over 15 yrs = 35100 + 1058.2 * (P/A, 4%, 15)

= 35100 + 1058.2 * 11.1183874

= 35100 + 11765.488

= 46865.49

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