Question: Refer to Problem. Set up a spreadsheet to answer various "what if" questions such as "How does the IRR vary as the cost of gasoline takes on these values: $3.00 per gallon, $4.00 per gallon, and $5.00 per gallon?" Also, how does IRR change when the ownership period changes across this range: 3 years, 4 years, 5 years, 6 years, and 7 years? How does the IRR vary when the differential resale value is $1,000, $2,000, $3,000, and $4,000?
Problem: Are you thinking of bypassing a gasoline fueled car in favor of a hybrid (gasoline and electric) automobile? Let's take a look at the relative economics of your possible choice. The gasoline-fueled car sells for $20,000 and gets 25 miles per gallon (mpg) of fuel. The alternative hybrid vehicle sells for $25,000 and averages 46 mpg. The resale value of the hybrid car is $2,000 more than that of the gasoline-only car after five years of anticipated ownership. If you drive 15,000miles per year and gasoline costs $4.00 per gallon, what is the internal rate of return on the incremental investment in the hybrid automobile?