Cost Benefit Analysis – Hybrid Cars

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Cost Benefit Analysis – Hybrid Cars
Presented by Mukesh Kakkar Jeff Graebner James Lepp

What is Cost Benefit Analysis (CBA)
Agenda What is Cost Benefit Analysis (CBA) Costs and Benefits Applications of CBA Steps involved Process Flow Hybrids Functioning Consumer opinion

Cost & Benefits Costs are value of the resources that must be used to develop, implement, and operate the program being analyzed Benefits are primary positive outcomes or consequences

Application of CBA Whether or not project should be undertaken
Could the project be viable in future Which among many competing alternatives and projects should be funded given a limited budget.

CBA Drill-down tree

Estimate benefits and cost
CBA Process Flowchart Establish Objectives Identify Constraints Identify Assumptions Define Base case Define Alternatives Set Analysis period Define level of effort Estimate benefits and cost relative to base case Evaluate risks Compare net benefits and establish ranks Recommendations

Hybrid Vehicles

Functioning

Opinions- facts or fiction

Gas Prices

Regressions Moving Average Simple Regression Holt-Winters
Multiple Regression (3) Time Series Decomposition ARIMA

Multiple Regression Dependent Variable Independent Variables Gas Price
Significant Consumer Price Index (CPI) Average number of miles traveled per vehicle 9/11 – dummy variable Hurricane Katrina – dummy variable War in Iraq – dummy variable Quarters – dummy variables Insignificant Total number of hybrids on the road Total number of light vehicles on the road Personal Income Motor Vehicle Output

Miles Vehicles Traveled
Statistics Audit Trail -- Coefficient Table (Multiple Regression Selected) Series Included Standard Description in Model Coefficient Error T-test Gas Price Dependent -13.76 1.63 -8.44 CPI Yes 0.05 0.01 9.88 Miles Vehicles Traveled 0.00 6.89 9/11 -0.16 0.04 -3.74 Katrina 0.25 0.07 3.57 Iraq War 6.23 0.92 6.79 Q1 -0.01 -0.27 Q2 0.11 3.00 Q3 1.00 Accuracy Measures Value AIC -73.65 BIC -72.47 Mean Absolute Percentage Error (MAPE) 2.38% R-Square 97.78% Adjusted R-Square 96.60% Overall F-test 82.68

Forecast Year Gas Price 2006 \$2.73 2007 \$2.91 2008 \$3.19 2009 \$3.47
2010 \$3.75

Vehicles Used in Study Ford Escape Hybrid Ford Escape
Honda Accord Hybrid Honda Accord Honda Civic Hybrid Honda Civic EX Lexus 400 Hybrid Lexus RX 330 Toyota Highlander Hybrid Ltd Toyota Highlander Ltd Toyota Prius Toyota Corolla LE

Benefits of a Hybrid Savings at the Pump
All Hybrids get a better fuel economy than their counterparts Lower Insurance Rates Drop of 5 to 10% Government Assistance Federal Tax credit Coase Theorem Take a decentralized approach to environmental pollution Lower Emissions Less Carbon Monoxide adding to Global Warming Self-Powering Engines No hassle in finding a plug Special Car-Pool Lanes No matter how many people are in the car

Costs of a Hybrid General Maintenance and Repair
Even though it does have an electric engine it is still needed New Batteries Need to be changed out every 8 to 10 years Higher Depreciation Rate Expected as 1 to 4% higher Higher Initial Cost Between \$4,000 and \$9,000

Inside the Numbers 5 years Honda Civic Hybrid (50) Honda Civic EX (28)
Hybrid extra cost or savings Purchase price (Automatic) \$22,400 \$18,444 \$3,956 Sales tax (7%) 1,568 1,291 \$277 Tax credit 2,100 \$2,100 Fuel cost (5 yrs) 4,468 7,979 \$3,511 Insurance (5% savings) 4,670 4,916 \$246 Maintenance & repair 4,163 \$0 Financing (3%) 3,568 2,938 \$630 Five-year depreciation rate 56.10% 53.00% Projected resale price 9,832 8,669 \$1,163 with federal tax credits \$2,156 w/o federal tax credits \$56

Inside the Numbers (Continued)
Year Miles Driven Carbon Monoxide Emitted Honda Civic Hybrid Civic EX 50 28 2006 15,000 274,950 5,499 9,820 2007 14,500 265,785 5,316 9,492 2008 14,000 256,620 5,132 9,165 2009 13,500 247,455 4,949 8,838 2010 13,000 238,290 4,766 8,510 Total Carbon Monoxide Released 25,662 45,825

The Results Manufacturer Model (mpg) Costs/Savings Points Ford
Escape Hybrid (33) Escape (23) with taxes \$3,871.42 4 without taxes \$2,450.58 -2 Honda Accord Hybrid (28) Accord (25) \$3,251.84 -3 \$3,901.84 -4 Civic Hybrid (50) Civic EX (28) \$2,156.36 2 \$56.36 Lexus RX400h (30) Rx330 (25) \$4,296.78 \$6,496.78 -6 Toyota Highlander Hybrid Ltd (30) Highlander Ltd (25) \$2,953.00 \$6,074.62 Prius (55) Corolla LE (34) \$1,493.43 1 \$4,141.38

The Results (Continued)
Manufacturer Model (mpg) Carbon Monoxide Saved Amount Points Ford Escape Hybrid (33) Escape (23) 38,882 55,787 16,905 3 Honda Accord Hybrid (28) Accord (25) 45,825 51,324 5,499 1 Civic Hybrid (50) Civic EX (28) 25,662 20,163 4 Lexus RX400h (30) Rx330 (25) 42,770 8,554 2 Toyota Highlander Hybrid Ltd (30) Highlander Ltd (25) Pirus (55) Corolla LE (34) 23,329 37,738 14,409

The Results (Continued)
Manufacturer Model (mpg) Costs/Savings With Tax Savings Included Without Tax Savings Included Ford Escape Hybrid (33) Escape (23) 9 3 Honda Accord Hybrid (28) Accord (25) -1 Civic Hybrid (50) Civic EX (28) 8 6 Lexus RX400h (30) Rx330 (25) -4 Toyota Highlander Hybrid Ltd (30) Highlander Ltd (25) 1 Pirus (55) Corolla LE (34)

Questions "An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts - for support rather than for illumination." —Andrew Lang