(1) C_F + M(c_OF+C_G/mpg_F) = C_H + M(c_OH+C_G/mpg_H)

with

C_F: purchasing cost of Ford van

C_H: purchasing cost of Honda van

M = m*y: Total distance traveled during life cycle, i.e. average annual mileage times years of life cycle

c_OF: operating cost of Ford van per mile

c_OH: operating cost of Honda van per mile

c_G: fuel cost per gallon

mpg_F: fuel efficiency of Ford van in miles per gallon

mpg_H: fuel efficiency of Ford van in miles per gallon

Show algebraically how to determine the values for

the Honda van fuel efficiency,

the Honda van operating cost, and

the fuel price

at which the total life cycle cost is the same for both vans. In other words, solve equation (1) above for

a) mpg_H, c_OH, c_G

Using numbers below:

	Ford Van	Honda Van
Purchase price	$32,000.00	$38,000.00
Fuel Efficiency (mpg)	26.00	37.00
Operating cost per mile	$0.20	$0.21
Miles per year	26000	26000
years of use	8	8
Cost per gallon	$4.50	$4.50

b)Determine the values for each variable above at which the total life cycle cost is the same for each van (using numbers above)

c)The current example does not include financing cost (or a discount rate to discount future cost flows to present values). Let's say you have been asked to assess the effect of including a 5% interest rate for financing expenses. For which of the two vans would it be favourable when a 5% discount was included? No calculations are required but you must provide a brief explanation.