Hybrid Cars Are Touted as a "Green" Alternative; However, the Financial

Multiple Choice

Hybrid cars are touted as a "green" alternative; however, the financial aspects of hybrid ownership are not as clear. Consider a hybrid model that has a list price of $5,420 (including tax consequences) more than a comparable car with a traditional gasoline engine. Additionally, the annual ownership costs (other than fuel) for the hybrid were expected to be $420 more than the traditional model. The EPA mileage estimate is 23 mpg for the traditional model and 25 mpg for the hybrid model. Assume the appropriate interest rate is 10 percent, all cash flows occur at the end of the year, you drive 15,900 miles per year, and keep either car for 6 years. What price per gallon would make the decision to buy they hybrid worthwhile?

A) $18.79
B) $21.48
C) $27.19
D) $28.32
E) $30.10