Capital Budgeting Project for Hybrid and non-hybrid car Harvard Case Solution & Analysis

Capital Budgeting Project for Hybrid and non-hybrid car Case Solution

Interpretations

The case analyzes the comparison of cost and performance between Hybrid and non-hybrid car, as well as it shows that how much the amount and cost savings will occur in the next few years for both the features under the same model car.However, three scenarios have been considered in order to compare the results between two same models under different features. In this case, Honda Civic is selected under Hybrid and non-hybrid feature and determined the importance of these three scenarios given below:

Sources of data

In order to analyse the difference between two features of Honda Civic, some sources of data have been considered to calculate the cost savings for each year. From the market analysts, it is determined that the expected price of Hybrid will be $24,735 in the beginning of 2015 and can be the same in the end of the year, while the price of gasoline is less than the Hybrid and has the price of $19,191 in the mid of 2015.(US department of energy, 2015)

However, the tax credit for non-hybrid Honda civic was more than the Hybrid according to the level of tax rate given by the US energy policy act of 2005. So it is expected to be greater than the Hybrid in the coming periods. Therefore, according to the price of gasoline, the tax value will be $4000 per purchase, whereas the tax of Hybrid will be $3400 per car.(Berman, 2011)

Therefore the total cost of Hybrid and non-hybrid car excluding the tax credit will be $21,335 and $15,191 respectively. The average miles per gallon rate of gasoline will consider to be 33 whereas the hybrid car will show 45 miles per gallon. It is expected that the average number of miles per year will be 12000, which is estimated to grow 2% over the year due to the use of car.

The average cost per gallon of gasoline was historically $3.5 per gallon, which can be expected to increase 3% each year due to the growing concern of inflation within a country. While the hybrid car was not judged through gallon of cost instead of kilowatt, therefore in order to compare with the cost of non-hybrid car, the kilowatt per gasoline fuel will considered to be 33.4 and expected to fuel the hybrid at 7.8 cents per gallon thus, in order to calculate the cost per gallon of Hybrid, the value of kilowatt will multiply with the average cent spend during the course of action. Therefore, the total value will be $2.61 per gallon used for hybrid car and indicates that this cost is less than the gasoline value.(Board of Governers of the Federal Reserve systems, 2016)

According to the US standards, it has been determined that the average federal reserve prime rate will expected to be 3.5% under the US policy act and the rate given by the commercial banks can be 5% more than the rate of federal reserve prime rate.Thus, it is assumed that all these sources of data will help to calculate the difference between Hybrid and non-hybrid car and to generate the cost savings incur by Hybrid model over gasoline.

Scenario 1

The first condition to buy the Hybrid as well as gasoline car will be made through the purchase, it shows that without the financing element, how much the Hybrid car can save the amount as compared to the non-hybrid car in the next ten years.On the other hand, the results concluded that the cost savings during the given years shows positive results excluding the finance of car.....................

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