Question

Cost Benefit Analysis over 10 years

Do a cost benefit analysis to decide wheteher to switch from a gas car built before 2005 to an electric car.

Do a cost benefit analysis to decide wheteher to switch from a gas car built after 2005 to an electric car.

HINT: Make cash flow table for 10 years reflecting the total savings of switching from pre 2005 gas car to electric car

HINT: Make cash flow table for 10 years reflecting the total savings of switching from post 2005 gas car to electric car

The government is offering an incentive of $11,000 for trading your gas car in and buying an electric vehicle

Assume that cost of gas will increase by 5% each year

You must include NPV and IRR for both comparisons in excel AND make a reccommendation

(you are free to make any other assumtions or rates you make, but be sure to clearly list them)

Electric Vehicles			Gas Cars
Cost of Electric Car	€ 15,000		Cars manufactured before yr. 2005
Electricity cost per kWh	€ 0.125		cost of fuel per gallon	€ 4.16
EV electricity consumption - kWh per mile	.483kWh/m		mpg	28.6
eFuel Cost / mile	€ 0.06		Gas Cost / mile	€ 0.15
# of miles driven per year	8,500		# of miles driven per year	8,500
Total Fuel Costs / yr	€ 513.19		Total Fuel Costs / yr	€ 1,236.36
Maintenance Costs	€ 485.00		Maintenance Costs	€ 1,500.00
Total Cost / yr	€ 998.19		Total Cost / yr / car	€ 2,736.36
			Cars manufactured after yr. 2005
			cost of fuel per gallon	€ 4.16
			mpg	35
			Gas Cost / mile	€ 0.119
			# of miles driven per year	8,500
			Total Fuel Costs / yr	€ 1,010
			Maintenance Costs	€ 1,000
			Total Cost / yr / car	€ 2,010

Answer 1

10 yar cash flows Electric Vehicle Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Cost of Electric Car Electricity Cost/kwH EV electricity consumption eFuel Cost/mile No. of miles driven Total fuel costs/year Maintenance costs/ year Total running Costs /year 15,000 0.125 0.125 0.125 0.125 0.125 0.1250.125 0.125 0.125 -0.125 $ Wh per mile 483 483 483 483 483 483 WH/m -006-0.06-0.06-006-006-006-006-006 -Q06-006S/mile 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 miles D BxC/1000 513 513 513 513 513 13 513 513 513 513 $ 485 485 485 485 $ 485 485 485 485 485 998 -485 -998 998 998 Pre-2005 Gas Vehicle Cost of fuel (escalated by 5% pa) MPG(miles per gallon) Gas Cost/ mile No. of miles driven Total fuel costs/year Maintenance costs/ year Total running Costs/year Cost savings from Electric Car Incentive for exchange of gas car for electric car -4.16 4.37 -4.59 4.82 28.6 0.15 -0.15 -0.16 0.17018 0.190.19 -0.200.210.23 s/mile 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 miles 1,236 1,298 1,363 1,431 -1,503 1,578 1,657 1,740 1,827 1,918 $ 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 $ 2,736 -2,798 -2,863 -2,931 3,003 -3,078 -3,157 3,240 3,3273,418 $ 1,738 1,800 1,865 1,933 2,005 2,080 2,159 2,242 2,328 2,420 $ 5.31 5.57 5.85 -6.15 6.45 $ 28.6 28.6 28.6 28.6 28.6 28.6 miles 3,240 3,327 -3418 s 11,000 -4,000 1,738 1,800 1,865 1,933 2,005 2,080 2,159 2,242 2,328 2,420 $ Net Cash Flows IRR NPV @ 10% discount rate 46% 8282

Post-2005 Gas Vehicle .4.16 .4.82 Cost of fuel (escalated by 5% pa) MPG(miles per gallon) Gas Cost/mile No. of miles driven Total fuel costs / year Maintenance costs/ year Total running Costs /year Cost savings from Electric Car -4.37 35.0 5.57 5.85 6.15 -6.45 $ 35.0 -4.59 -5.06 5.31 35.0 J1 35.0 35.0 35.0 35.0 35.0 35.0 35.0 miles L1 M1 = K1 x L1 NI 01-M1+N1 0.12 -0.12 0.13 0.14 -0.14 0.15 0.16 -0.17 0.18 0.18 /mile 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 miles 1,010 -1,061 -1,114 -1,1701,228 1,289 1,354 -1,422 -1,493 -1567 $ 1,000 -1,000-1,000 1,000 1,000 1,00 1,000 1,000 1,000 1,000 2,010 -2,061 -2,114 -2,170 -2,228 -2,289 -2,354-2422-2,493-2,567 S 1,012 1,569 $ R1-A+Q P1 4,000 1,01 1,063 1,116 1,171 1,230 1,291 1,356 1,423 1,494 1,569 $ 1,063 1,116 1,171 1,230 1,2911,356 1423 1,494 Net Cash Flows IRR NPV @ 10% discount rate 26% 3527 Conclusion 1. It makes sense to switch from gas car to an electric car since both scenarios yield psitive NPV & IRR 2. It makes more sense to switch from gas car pre 2005 to an electric car since both NPV & IRR are positive