Hybrid Car vs Its Gasoline-Engine Counterpart - Case Study Example

I drive around 12,000 miles annually. Currently, the cost of a gallon of gasoline, on average, in the United States is $ 2.433 (GasBuddy.com, 2015).

Question 3
The annual cost of driving a Hybrid Honda Civic EX = annual gallon of gasoline*price per gallon. Gallons used annually = (12,000/44) = 272.73 gallons. Therefore, the total cost = (272.73*2.433) = $ 663.55 annually. On the other hand, the aggregate cost of driving the non-hybrid model = annual gallons * cost per gallon. Annual gallons consumption rate = (12,000/39) = 307.69. Therefore, the total cost = (307.69*2.433) = $ 748.61 annually. Based on the cost estimations, the savings offered by the hybrid model over the non-hybrid model = (748.61 – 663.55) = $ 85.06.

Question 4
The net present value (NPV) of the hybrid model assuming a rate of return of 10% is determined. The annual cash inflow = $ 85.06. The original investment = (26,925 – 21,275) = $ 5,127. Therefore, the NPV = $ - 4,604. See appendix 1 (Needles, Powers & Crosson, 2011).
Question 5
Based on the analysis, the NPV of the hybrid model = $ - 4,604, which is lower than the cost of the gasoline counterpart ($ 21,275). The investment does not create value for the investors but does save costs related to fuel consumption as has been determined above ($ 85.06) annually.

Question 6
The payback period is how long it takes to recover the initial investment completely. Based on the analysis, the original investment = (cost of the hybrid car – the cost of the gasoline counterpart) = (26,402 – 21,275) = $ 5,127. The anticipated annual net cash flows have been determined as $ 85.06. Therefore, the payback period = (5,127/85.06) = 60.28 years (Needles, Powers & Crosson, 2011).

Question 7
The following are some of the quality factors that influence a buyer's decision: first, hybrid cars have less power as compared to their gasoline counterpart. The amount of load that the model can carry is limited. Second, the battery is sensitive to temperature. In cold weather, its ability to store charge is limited. The same applies to the length of charge storage. Therefore, the fuel consumption may not be optimized during cold weather. Third, the cost of replacing vehicle parts is high. For instance, it is expensive to replace the rechargeable battery. Last, the speed at which the hybrid cars move is lower as compared to the non-hybrid car speed. Therefore, it is not easy for hybrid cars to keep up with the highway speed (Hybrid car disadvantages you may want to consider, 2012).











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