Jamil Jamal is interested in buying a new Jeep SUV. There are two options available, a V­6 model and a V­8 model. Whichever model he chooses, he plans to drive it for a period of 5 years and then sell it. Assume that the trade­ in value of the two vehicles at the end of the 5­year ownership period will be identical. There are definite differences between the two models and Jamil needs to make a financial comparison. The manufacturer's suggested retail price (MSRP) of the V­6 and V­8 are US$30,260 and US$44,320, respectively. Jamil believes the difference of US$14,060 to be the marginal cost difference between the two vehicles. However, there is much more data available, and you suggest to Jamil that his analysis may be too simple and will lead him to a poor financial decision. Assume that the prevailing discount rate for both vehicles is 5.5 percent annually. Other pertinent information on this purchase is shown in the table

a. Calculate the total 'true' cost for each vehicle over the 5­year ownership period.
b. Calculate the total fuel cost for each vehicle over the 5­year ownership period.
c. What is the marginal fuel cost from purchasing the larger V­8 SUV?
d. What is the marginal cost of purchasing the larger and more expensive V­8 SUV?
e. What is the total marginal cost associated with purchasing the V­8 SUV? How does this figure compare with the US$14,060 that Jamil calculated?

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V-6 V-8 MSRP Engine (liters) Cylinders Depreciation over 5 years Finance charges* over entire 5-year period Insurance over 5 years Taxes and fees over 5 years Maintenance/repairs over 5 years Average miles per liter Ownership period in years Miles driven per year over 5 years Cost per liter of fuel over 5 year ownership US$30,260 US$44,320 3.7 5.7 US$17,337 USS 5,171 USS 7,546 USS 2,179 US$ 5,600 US$25,531 USS 7,573 US$ 8,081 USS 2,937 US$ 5,600 14 15,000 USS 3.15S 15,000 US$ 3.15