1. (5 points) Its time for a new vehicle, and youre weighing the (economic) benefits of purchasing a hybrid vehicle. Based on the vehicle models youve considered, the current MSRP premium you would pay for a hybrid is roughly $5,700 in comparison to the respective standard models. Youve estimated your annual fuel savings for the hybrid at $1350, but you also would plan to purchase an extended warranty to cover the hybrid drive train. This extended warranty would add $625 per year to your car payment. You are anticipating a premium of $900 on the salvage value if you purchase a hybrid. To standardize your analysis, youre considering the amount of time associated with a standard 5-year car loan period. Your available investment opportunities for this time period have an average return of 6% (i.e., your personal MARR is 6% over this time period). Assume EOY cash flows.

(a) Draw the CFD to show all NET cash flows from purchasing a hybrid vehicle.

(b) Use the Future Worth method to assess this decision at EOY 5. Is this a good investment, based on your current personal MARR? Why or why not? Show all work.

2. (10 Points) Use the Annual Worth and Present Worth methods to assess the decision to purchase the hybrid vehicle in question 3. Demonstrate that your answers from the PW and FW methods are economically equivalent to your answer from the AW method. (Hint: See example 5-8). Show all work.