Both vehicles are expected to last 10 years.

Residual value for both cars is 0.

What is the present value of buying Car 2 (gas)? What is the present value of buying Car 1 hybrid? (Remember that the total cost is the purchase price plus the cost of gasoline over the vehicle's life.) Cost for Car 2 is $24,050. Cost for Car 1 is $23,100. Car 1: No of gallons of gas used in a year = Miles per year/ Mile per gallon rating = 15000/53mpg = 283 gallons Average fuel cost for Car 1 = No of gallons of gas used in a year * Cost per gallon = 283* $3 = $849 per year Car 2: No of gallons of gas used in a year = Miles per year/ Mile per gallon rating = 15000/29mpg = 517 gallons Average fuel cost for Car 2 = No of gallons of gas used in a year * Cost per gallon = 517* $3 = $1,551 per year Computation of Present Value of Fuel Cost of Car 1 Average Fuel Cost for Car 1= $849 per year Discounting Factor@6% = 0.943 Thus, Present Value of fuel cost = $800.607 (849*0.943) Computation of Present Value of Fuel Cost of Car 2 Average Fuel Cost for Car 2 = $1551 per year Discounting Factor @6% = 0.943 Thus, Present Value of fuel cost = $1462.59 ( 1551*0.943) %3D