A Major US

question 27

Essay

A major U.S. oil company has developed two blends of gasoline. Managers are interested in estimating the difference in mean gasoline mileage that will be obtained from using the two blends. As part of their study, they have decided to run a test using the Chevrolet Impala automobile with automatic transmissions. They selected a random sample of 100 Impalas using Blend 1 and another 100 Impalas using Blend 2. Each car was first emptied of all the gasoline in its tank and then filled with the designated blend of the new gasoline. The car was then driven 200 miles on a specified route involving both city and highway roads. The cars were then filled and the actual miles per gallon were recorded. The following summary data were recorded: Based on these sample data, compute and interpret the 95 percent confidence interval estimate for the difference in mean mpg for the two blends.

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Definitions:

Profitability Index

A financial measure that assesses an investment's attractiveness, determined by dividing the present value of future cash flows by the initial investment amount.

Initial Investment

The initial amount of money that is invested in a project or venture at the beginning.

Salvage Value

The predicted end-of-life value of an asset once its period of usability concludes.

Discount Rate

The specified rate used within discounted cash flow evaluations to determine what future cash flows amount to in present-day currency.