ECO 395



ECO 395

Professor Rizzo

Assignment #4: This assignment is to be completed by your groups.

Assigned: Monday, April 3rd, 2006

Due: Monday, April 17th, 2006

Part I ( “Purchase a Prius or a Corolla”

This assignment will have you take advantage of a couple of neat features in Excel to evaluate which new car you want to purchase. In this assignment, you are trying to decide whether you should purchase a brand new Toyota Corolla or a brand new Toyota Prius. Suppose that you do not know how to drive a manual transmission vehicle. Further, suppose that 45% of your driving takes place in a city and 55% on an open highway, regardless of how many miles you drive each year. Your goal is to put together an excel spreadsheet that will enable users to do these calculations simply and easily. Show and describe your work where necessary.

i. Assume that you finance the purchase of each car with a loan that extends for a period of 5 years (i.e. 60 months). Using excel, show what the monthly loan payments for each car would be if the principle and interest amounts on the loan are constant for each period of the loan using current interest rates on auto loans for consumers with excellent credit.

ii. In addition to fuel costs per mile, assume that the per mile cost of driving a Corolla is 7¢ per mile for the first 12,000 miles driven per year and 8¢ per mile thereafter. Assume that the per mile cost of driving a Prius is 8¢ per mile for every mile driven. These are the costs required to maintain each car, and as the Prius is new and uses hybrid electric-gas technology, there are not many mechanics that are able to work on those engines yet – which accounts for its higher initial mileage cost. Using excel, show what the monthly driving costs would be for each vehicle at today’s gas prices. What would monthly driving costs be for each vehicle at gas prices from exactly 10 years ago.

iii. Using excel’s solver feature, calculate how many miles you would have to drive per year in order for the total cost of driving a Prius to be less than or equal to the total cost of driving a Corolla. Assume today’s gas prices and that the resale value of each car is zero at the end of 5 years.

iv. Using excel’s solver feature, calculate how many miles you would have to drive per year in order for the total cost of driving a Prius to be less than or equal to the total cost of driving a Corolla. Assume gas prices that prevailed 10 years ago and again assume that the resale value of each car is zero at the end of 5 years.

a. Extra credit ( can you write a macro (or create a macro button) that performs this solve feature without having the user make use of the toolbars?

v. Assume current gas prices prevail and that you know you will only drive 7,000 miles per year (you live within walking distance from work). Again assuming that the cars have no resale value, how many months will you have to own and drive your new Prius in order for it to make economic sense to purchase a Prius. Assume the prevailing market interest rate on risk-free securities is 6%.

vi. Repeat the calculation in part (v) assuming gas prices that prevailed 10 years ago and that you now drive 12,000 miles per year.

vii. How high would gas prices need to rise (or fall) before it makes economic sense to purchase a Prius when you drive 8,000 miles per year? 12,000 miles? 16,000 miles?

viii. Assume you only drive 10,000 miles per year. Using excel’s goal seek feature, how low would interest rates have to be for the annual cost of a Prius to fall below $5,000? What if you drive 15,000 miles per year?

ix. Assume that you drive 10,000 miles per year. Using excel’s goal seek feature, how high could has prices rise for the annual cost of a Prius to remain below $6,000? What if you drive 15,000 miles per year?

a. Extra credit ( can you write a macro (or create a macro button) that performs this goal seek feature without having the user make use of the toolbars?

x. If your goal is to minimize gasoline consumption in an economy, when does it make sense for consumers to purchase a Prius and when does it make sense for consumers to purchase a Corolla? (Hint: there is still a waiting list for people who want to purchase a Prius)

xi. What other economic lessons can be learned from this analysis?

Part II ( Entrepreneurship in Kentucky

The Governor of Kentucky has had many discussions with his economic development team about metrics that are relevant to the state’s entrepreneurship and innovation capabilities. He understands that there are both baseline and longitudinal aspects to this. As an example of a baseline topic, it would be useful to be able to make fact-based statements about the aggregate investment in the state’s R&D capacity. He is also interested in ongoing measurement of indicators of entrepreneurial activity and success such as business formation, wealth generation, and so forth.

Your task is to identify and measure the level and rate of change (if possible) of entrepreneurship and innovation in Kentucky. The governor has no specific idea as to what you will present him, but you might consider developing an index of entrepreneurship that could be replicated in other states as well. If publicly available data sources permit, you might also present measures by region and/or county and identify those counties that have made the most progress by your indicator and those that appear to be lagging behind the rest of the state.

Be creative.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download