While the Chevrolet Volt and the Nissan Leaf have gotten a lot of attention about their electric vehicle status, Ford said on Tuesday, December 7th,  that it had started shipping a battery-powered version of a delivery van, known as the Transit Connect Electric, to several business customers, including AT&T, the Canada Post, the New York Power Authority, and Southern California Edison. Development of the electric van began 13 months ago — about three years after G.M. had started work on the Volt. It can be driven nearly 400 miles between recharging and refueling, but has no secondary power source. The electric Transit Connect costs $57,400, which is more than double the price of the gas-powered version even after federal and any state or local incentives for electric vehicles are factored in.
Questions:
1. Assume that AT&T is evaluating the purchase of vans. The gas-powered vans average 30 miles per gallon of gas at an average price of $2.80 per gallon. The company will use the vans 288 days a year and plans to drive each van a maximum of 400 miles per day. They project that they will keep the vans 6 years and the vans will have no salvage value. AT&T has estimated that each electric van will require approximately $4 per day in charging and repair costs. Each type of van (gas or electric) is involved in generating the same amount of annual sales of $72,000.  If you assume that the gas-powered van has the same economic life and salvage value as the electric van and is half the price of the electric van (projected cost of $57,400 per van), determine the average rate of return for each type of van. Show your work.
2. Using information from #1 and assuming that AT&T has estimated that both types of vans will be responsible for equal annual cash flows of $12,000, what is the payback period for the electric van versus the gas-powered van? Show your work and discuss whether the company should make this investment in terms of your payback analysis.
3. What are some of the qualitative factors that should also be considered when making this investment?
Source:
Bunkley, Nick. (2010). Ford Starts to Ship an Electric Delivery Van. The New York Times, December 7. (Retrievable online at http://www.nytimes.com/2010/12/08/business/08electric.html?_r=3&ref=business)
