Compute Present Values: You are considering the purchase of a truck. If you purchase a truck with a standard gasoline engine, you expect an average of 20 miles per gallon. If you purchase a diesel engine, you expect an average of 30 miles per gallon. You expect to drive 20,000 miles per year and keep the truck for four years. Gasoline costs $1.20 per gallon, and diesel fuel costs $1.25 per gallon. The diesel engine will cost $800 more than the standard gasoline engine. However, when you trade the truck in at the end of four years, it will be worth $150 more if it is equipped with a diesel engine. You estimate that maintenance costs would be $400 per year for both engines. Your before-tax cost of capital is 14 percent. (Ignore taxes.)

Required: Which model would you purchase, the truck with the diesel or gasoline engine? Why? (Show supporting computations using differential cash flows.)