Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 5

Affording a Hybrid
With gasoline prices at $3.00 per gallon, consumers are flocking to purchase hybrid vehicles (com­bination of gasoline and electric motors) that get 50 miles per gallon of gasoline. The monthly pay­ment on a three-year lease of a hybrid is $499 compared to $399 per month on a conventional, equivalent traditional gasoline car that gets 25 miles per gallon. Both vehicles require a one-time $1,500 payment for taxes, license, and dealer charges. Both vehicles have identical lease terms for the residual value, maximum number of miles allowed without penalty, and so forth.
Required:
a. Calculate how many miles the consumer must drive per year to make the hybrid the economical choice over the conventional gasoline-only vehicle.
b. How does your answer to part ( a ) change if the price of gasoline is $4.00 per gallon?