Written Assignment: Short Budget

Assignment Introduction
This is a Written Assignment, worth 100 points. I have just completed two videos on management and budgetary tools found in the Course Library; Loan Amortization and Short Budget. These videos are found under Training Videos link in the Course Library. Both the videos and tools they describe will assist you in completing this assignment. As you complete all 20 questions for this assignment be certain to share your findings and knowledge with your friends, family and associates. Oh, and dont forget to email your responses to me. General Motors has declared Chapter 11 Bankruptcy (Chapter 5 of the text material) and the Federal Government along with California are imposing strict vehicle emissions and mileage standards which affect the size of vehicles, their production costs, and market acceptance. Unfortunately, congress and our California legislature fail to consider the consumers buying habits to be valuable because the purchasing public (you will read about this in Chapter 11 and Chapter 12) really have not wanted to purchase environmentally friendly vehicles but have preferred large vehicles such as SUVs and Trucks for their size and family safety. And those kinds of vehicles are where the big three automakers make their profits. Yes, Ford Motor Company is promoting their eco-friendly vehicle however this may be for political expediency, and the buying public has not purchased that vehicle, thus it is most unprofitable for Ford. In an article titled Obamas new rules will transform US auto fleet by Tom Krisher (http://apnews.myway.com/article/20090519/D989J3F00.html, Accessed 19 May 2009) he says:
The higher mileage and emissions standards set by the Obama administration which begin to take effect in 2012 and are to be achieved by 2016, will transform the American car and truck fleet. The new rules would bring new cars and trucks sold in the United States to an average of 35.5 miles per gallon, about 10 mpg more than today's standards. Passenger cars will be required to get 39 mpg, light trucks 30 mpg. That means cars and trucks on American roads will have to become smaller, lighter and more [fuel] efficient (and more dangerous for riders and drivers in accidentsRDS). Car companies are rewiring vehicles so components such as air conditioners and power steering pumps are powered by electricity rather than by the engine, saving fuel. And they're developing computer-controlled transmissions with six or more gears, adding

efficiency, and rolling out more gas-electric hybrids - among the few cars sold today that meet the 2016 standards. Of course, developing the technology will cost money - billions of dollars - and automakers will pass that (the development costs) on to their customers. The Obama administration says the changes mean the average vehicle would cost about $1,300 more, although some private analysts say the increase will be much heftier. The administration says gas savings will make up the difference in about three years. (The Chevy Malibu sells for about $26,000 and the Volt is selling for about $44,000; both of which have the same body and frame. The Volt is considerately more expensive than the $1,300 increase promoted by the Obama Administration, RDS) Automakers have said they need stable, relatively high gasoline prices to create a market for electric vehicles. General Motors fears rolling out its rechargeable Chevrolet Volt [in 2010] with gas at $2 per gallon. American consumers have already shown their car-buying habits can change rapidly depending on gas prices. When fuel cost $4 a gallon in the summer of 2008, people flocked to smaller cars. Gas has been much cheaper, though prices are again on the rise; in the interim the sales of hybrids plummeted. "The U.S. consumer has consistently chosen performance over fuel economy given the relatively low cost of fuel," David Leiker, senior automotive analyst for Robert W. Baird & Co. in Milwaukee, wrote in a note to investors. But the Volt is expected to sell for $35,000 to $40,000, and buyers may be unwilling to pay that much for a sedan, even if tax credits help ease the burden, unless gas prices soar.

There are those who will assert that the foreign made cars will fare better than American made. Yet in an article posted at PHEV, 19 May 2009, reporting that Toyota Says Plugin Car Demand as Low as 3500 per Year, GM Says Low Demand Could Affect Volt Program The Course Library contains more reading on the GM Volt and the sticker shock for it. Download the file GM Volt's price induces some sticker shock and read more. This is a .pdf file.

SHORT BUDGET WRITTEN ASSIGNMENT (100PTS) NAME: NICHOLAS ISCAKIS SECTION NO:.3097 SCORE: ____________________ This assignment is due by Friday, Week #8, 7:30PM and you may complete this one early. When submitting your work, first save it with your name (Last name_First Name), ShortBudget and your section number in this format: Last Name_First Name_ShortBudget_Section Number and then email your responses to me at: skidmore_rd@piercecollege.edu I have placed two videos in my WEB Page at http://faculty.piercecollege.edu/Rskidmore/ Select the link titled Training Videos to access the instructional videos Loan Amortization and Short Budget Download the Excel files Loan Amortization and Old Car vs New Car to your computer. These files are found in the Course Library. You will use these files to assist you in answering the following questions. Also the above narrative information will be valuable for you in completing the assignment. For some questions I have identified where the answer is located on the spreadsheet. Example: O-14 refers to location Column O and Row 14 on the spreadsheet. FOLLOW THE INSTRUCTIONS for each question below. Do some critical thinking before you answer some questions. As you work your way through this assignment I want you to think on this question: Economically speaking what is the least expensive automobile one can DRIVE? The car you are currently have Assume that you are going to purchase a new socially approved Environmentally Friendly vehicle from the now Government owned General Motors. You have decided to purchase the Chevrolet Volt. You have settled on a price of $40,000 and will put down $4,000, financing the balance of the principal. You drive on average 12,000 miles per year. 1) What will be the principal loan amount on this purchase?36,000

Use the Loan Amortization spread sheet to answer these next two questions with this information: The interest rate on the Volt loan will be 4%, and you finance the vehicle for 5 years. 2) If you make 12 payments per year, how much interest (Loan Amortization) will you have paid over the life of the loan?3,779.69 3) From the Loan Amortization report what is the Scheduled Monthly Payment on the loan that your budget will have to be able to handle for this purchase?662.99

As you are considering this loan for a vehicle to replace the current vehicle (Changing technology) you must put the Monthly Payment from Question #3 in the Short Budget at location D-19 which will reflect a new monthly payment.
From here on you will be using the Short Budget. The Obama administration has stated that the socially approved environmentally friendly vehicle will save the buyer approximately $2,800 per year in fuel costs. This is often a selling point for everyone. However, it is the Total Cost of the purchase that is important and not just one element such as fuel economy. So the next set of questions deals with and answers these points.

For the rest of the questions use the Short Budget spread sheet Old Car vs. New Car.
***Note: For these calculations put the Fuel Economy MPG on the new car at 36 and the Miles/YR at 12,000. Update the monthly payment from Question # 3 above into the Short Budget Old Car v New Car at location D-19. *** 4) If fuel costs $2.50 per gallon how much more per month from your budget will this vehicle cost versus the owned Ford Explorer?592.04 H-27

5) What is the fuel cost savings per year when gas is $2.75 per gallon?1,024.51O-14 6) How much extra does this car cost annually when gas costs $2.75 per gallon? 7,011.37H-28

7) What is the fuel cost savings per year when gas is $3.00 per gallon? 1,117.65 O-14 8) If fuel costs $3.00 per gallon how much more per month from your budget will this vehicle cost versus the owned Ford Explorer?576.52 H-27

9) What is the fuel cost savings per year when gas is $3.50 per gallon? 1,303.92 O-14 10) How much extra does this car cost annually when gas costs $3.50 per gallon?116.67 H-28

11) What is the fuel cost savings per year when gas is $4.00 per gallon? 1,490.20 O-14 12) If fuel costs $4.00 per gallon how much more per month from your budget will this vehicle cost versus the owned Ford Explorer?545.48 H-27

13) How high do fuel costs per gallon (D-8) have to be to save approximately $2,800 per year? 7,512 O-14 14) And does this still cost more of your annual budget (H-28)? YES or NO. Yes 15) Assume that Gas costs $3 per gallon, but the new vehicle gets 75 miles per gallon. How does this affect the annual budget expense? Increase or Decrease? Decrease H-28 16) How much extra does this new vehicle cost annually when gas costs $3.00 per gallon getting 75 miles per gallon? 533.19 H-28 We all know that if we drive fewer miles this will reduce our costs. Lets see if this works on the new purchase. Assume that the miles the vehicle is driven drops to 9,000 miles per year, miles per gallon are 75, and fuel costs $3.00 per gallon. 17) How much extra does this new vehicle cost annually when gas costs $3.00 per gallon when the total miles driven drop to 9,000 and getting 75 miles per gallon? 567.31 H-28 18) Compare answer #16 with answer #17. Did the annual costs of ownership increase or decrease by driving fewer miles? Decreased There is no trick in these calculations. What you are seeing is the affect of one vehicle you own versus one vehicle you must purchase again. 19) Do you think that purchasing the socially approved Environmentally Friendly government preferred vehicle is a good choice financially? Yes or NO? No

20) Economically speaking what is the least expensive automobile one can DRIVE? The same one you already have Advice: When ever any business considers adopting technology as a replacement for current technology they will perform this same analysis. However it will work in this order: (1) Prepare a budget on your business/operation and determine the amount of discretionary dollars that are available. Discretionary dollars are those that are not already committed to some other activity. This is equally true for the individual only they should not be infringe on your savings. (2) If financing is required then determine what the payment amount will be for your budget (loan amortization program). This can be calculated on monthly, quarterly, semiannual, or annual payments (yes, some businesses make their loan payments annually). (3) Perform a short budget for the new technology comparing it with the current technology to determine the amount of extra dollars it will take to make the purchase and change. This is compared to the discretionary dollars in your budget. If the new technology is more expensive that your budget allows, then the change should not take place. Lastly, this procedure outlined needs to be used by you as you consider adopting any new technology also. I have placed in the Course Library spreadsheets to help you with the budgeting analysis. Final Note: It is often remarked that in Europe the retail price of fuel is four or five times the cost in the United Statesand the speaker alludes to the fact of how lucky Americans are to have such low costing (retail) fuel, with a hint that you should be willing to pay more. The reality is that the retail price difference between the United States and European fuel is 100% taxation; European fuel is HEAVILY taxed and the Fuel industries are nationalizedEurope is a collection of socialized states where the United States has not been. I hope you have enjoyed this assignment.
Remember that Readers are Leaders, Leaders are Readers, and non-readers follow!

Cheers RD Skidmore, Prof.

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