ECON5028 PPAIC 1) You are faced with a choice of buying a diesel engined car or its petrol equivalent. The Diesel version costs 17,000 and the petrol equivalent 15,500. The diesel car has a fuel consumption of 40 miles per gallon and the petrol version 30 miles per gallon. A litre of diesel costs 1.40 and a litre of petrol 1.35. Assume there are 4.5 litres per gallon. The mileage driven is forecast as being 12,000 miles per year and the car is expected to last 10 years. Assume no residual value. a) Construct the relevant cash flow diagrams and assuming all other costs are the same, which would be the better ie. cheaper purchase on the basis of a DCF calculation using a 5% discount rate? b) What discount rate would make the purchaser indifferent (ie equalise total costs) of the choice? c) What annual mileage would make the purchaser indifferent between the two options at the 5% discount rate? d) What yearly % change in fuel prices would make the purchaser indifferent between the two options at a 5% discount rate assuming the fuel price of the more expensive choice had remained constant? (75%)