Your old car has died and you need to purchase a replacement. You drive 18,000 miles per year and plan to keep the car for 10 years. You have settled on a Toyota Camry but are trying to decide between the gas and hybrid version.
The normal Cmary costs $25,000, gets 28 miles/gallon, and you expect to sell it for $4,000 at the end of the 10 years.
The hybrid Camry costs $30,000, gets 38 miles/gallon, and you expect to sell it for $5,000 at the end of the 10 years.
You estimate that the average gas cost will be $3.25 per gallon over the next 10 years and the appropriate interest rate is 7 percent.
There will be other costs (maintenance, tires, etc) but you don't believe they will be substantially different between the two cars so you are ignoring them for this comparison. You want to compare the cost of purchase and the present value of the gas minus the present value of the sale proceeds.
What is the cost of the normal Camry?
What is the cost of the hybrid Camry?