A company has the opportunity to buy a new van for the car pool. It can choose among three models which are equal in quality. The appropriate discount rate is 4 %. The following data should be used to make a decision:

a) Which vehicle would you buy if the decision is based on the cost comparison method?

b) State which investment is profitable when using the net present value method? We assume that the current cash outflow occurs at the end of the year, the initial outlay occurs at the beginning of year 1, at the decision point of time.

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Price Economic life Annual mileage in km Operating costs per 100 km Fixed costs per year Model 1 72,000 6 years 40,000 30 Model 2 84,000 6 years 40,000 25 Model 3 96,000 6 years 40,000 20 5,200 5,000 4,800