Hybrid Car vs Gasoline-Engine - Case Study Example

This is an evaluation of whether to purchase a hybrid car or a gasoline-engine car. My cars of choice are Honda Civic 2015 (non-hybrid) model and Honda Civic Hybrid 2014 model.

 Task 1 - Total cost of each model and Miles- Per-Gallon

2015 Honda Civic (non-hybrid)

2014 Honda Civic Hybrid

Manufacturer's suggested retail price (MSRP)

= $18,290

$27,435

Registration and title (Florida) (NCSL, 2015)

$ 317

$ 317

Insurance (CarInsurance, 2015)

$1,281

$1,281

Sales Tax 6 % (FDR, 2014)

6% * $18,290 = $1097

6% * $27,435 = $1646

Total cost of the car

$20,985

$30679

Miles-per-gallon (city) (Honda, 2015)

31

44

Task 2 - Estimate the number of miles per year and cost of fuel

Distance from home to workplace 30 miles

Distance per day 30*2 = 60 miles

Distance per year 60*20*12 = 14,400 miles per year. (Assume 20 working days per month)

Cost of gallon of gasoline (FloridaGasPrice, 2015) = $2.431

Task 3 - Total cost of driving each model for one year

 2015 Honda Civic (non-hybrid)

2014 Honda Civic Hybrid

(Miles per year/MPG)* Cost of a gallon of gasoline

(14,400/31)*$2.431

= $1097.87

(14,400/44)* $2.431

=$795.6

Annual fuel net saving (hybrid)

-

$1097.87 - $795.6

=$302.27

Task 4 NPV of the hybrid model
Using the annual fuel savings as the annual cash inflow for the 10 years you would own the car. (Assuming a discounting rate of 8%)
NPV =  PVAF 10, 8% - Initial cost
A{ [ 1- ( 1+r )^-t ]/ r } - Initial cost
Where a = annuity,
r = discounting rate,
t = time (number of years)

Therefore, NPV = $302.27{ [1- ( 1+ 0.08)^-10] / 0.08 } - $30679

                        = $2028.25 - $306709
NPV (hybrid) =(28650.74)

Task 5 . Compare the NPV of the hybrid model with the cost of the gasoline-engine mode
The NPV of hybrid is  (28650.74), while the NPV non-hybrid gasoline model (20,985). From a  financial perspective, buying the gasoline engine model will bring a net saving of $7,665.74 at the end of the ten years period. The analysis of the costs shows that the hybrid model does not make sense.

Task 6: Payback period of the hybrid model.
Payback period = Investment / Annual net cash inflow
Investment = Difference in models' costs
Hybrid cost - Non-hybrid cost         
$30679 - $20,985
 = $9692

Annual net cash inflow = Annual fuel savings = $302.27

Therefore, payback period = $9692 / $302.27
 = 32 years.

Task 7 - Qualitative factors affecting the choice of the model.
Environmental impact. Hybrid cars produce fewer amounts of carbon dioxide compared to the non-hybrid models since they consume less gasoline. Owing to the pressure carbon dioxide and other exhaust gases are putting on the environment, the hybrid model is the best choice.

Hybrid cars have higher resale value. As the prices of gasoline continue increasing, more people are turning to hybrid models. Compared to the traditional model's hybrid models have started commanding higher resale value.