Question

In June 2008, when gasoline prices were at an all-time high (more than $3.99 per gallon), Chrysler Motor Company promoted its Jeep vehicle with the offer of either $4,400 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.80 per gallon of gas for the next 3 years (the details of the guarantee could vary by dealer) Required: 1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase, you expected gasoline prices to average $5.16 per gallon over the next 3 years. How many miles would you have to drive the vehicle in the next 3 years to make the guarantee more attractive than the $4,400 discount? (Do not round intermediate calculations. Round your final answer up to the nearest whole number.) 2. Assume the same information as in requirement 1, except the average price of gas for the next 3 years is not known and you are likely to drive 9,250 miles per year. What would the breakeven gasoline price in the coming 3 years need to be to make you indifferent between the two options? (Round your answer to 3 decimal places.) Miles to be driven over the three years must exceed 1 Breakeven average gasoline price 2.

Answer 1

Step-by-step explanation:

1.

Let the indifference point in miles be M

Savings for the guarantee = Savings for the discount

[$4.98 x (M/15)] — [$2.90 x (M/15)] = $4,700

$4.98M - $2.90M = $70,500

M = $70,500/2.08

M = 33,894 miles over three years

Or 11,298 miles (33,894/3) per year

Therefore, the indifference point in miles is33,894 over the three years period or 11,298 miles per year

2 Miles driven over 3 years = 9,750 miles X 3 = 29,250 miles

Let the indifference point in gasoline be G:

[G x (29,250/15)] - $4,700 = $2.90 x (29,250/15)

G (29,250/15) = $10,355

G= $5.31 average gas price for the next three years

Answer 2

See attached file

Step-by-step explanation: