[Brianna08]

In June 2008, when gasoline prices were at an all-time high, greater than $4 per gallon, Chrysler Motor Company promoted its Jeep vehicle with the offer of either $4,500 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.99 per gallon of gas for the next three years.

Required:
1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase you expected gasoline prices to average $5 per gallon over the next three years. How many miles would you have to drive the vehicle in the next three years to make the guarantee more attractive than the $4,500 discount?

2. Assume the same information as in part 1 above, except the average price of gas for the next three years is not known, but you are likely to drive 8,500 miles per year. What is the break-even gasoline price in the coming three years so that you would be indifferent between the two options?

3. What are some important aspects of the decision that do not have to do with the price of gasoline and the $4,500 discount?

[Unknown008]

1. Under the discount, $4,500 represents 900 gallon at $5 per gallon, and gives you 13500 miles.

Under the guarantee, at $2.99 a gallon and 15 mpg, you would spend $44.85/mile and to spend less than $4,500, you would have to drive how many miles?

2. 8,500 miles a year, over 3 years is 25,500 miles in all.
Through the guarantee, you will have to pay 25,500*2.99
Through the discount, you will need to pay for 25,500*x - 4,500 = 25,500*2.99

Total cost of gas, minus the discount that you get, should give you the total amount paid under the guarantee. Solve for x.

Or if you want:
Total price under guarantee = P + Cost of gas at 2.99
P is the cost of the jeep.
Total price under discount = (P - 4500) + Cost of gas at x
At break-even, the total costs are the same.
P + Cost of gas at 2.99 = (P - 4500) + Cost of gas at x

Cost of gas at 2.99 = Cost of gas at x - 4500

3. That is a more inferential question and will most probably vary from perspective to perspective. What are yours? :)