You can choose between an electric vehicle that requires very high upfront costs, a somewhat cheaper hybrid vehicle and a traditional gasoline powered vehicle. Your discount rate for future cash flows is 10%.

The upfront cost of each car is:

Electric: $80,000

Hybrid: $60,000

Gas: $45,000

In the first year you estimate the running costs (including fuel, insurance, maintenance etc.) to be:

Electric: $2,000

Hybrid: $5,000

Gas: $7,500

You assume that these costs will increase at an inflation rate of 5%. That is, year 2 costs will be 5% higher than year 1 costs and year 3 costs will be 5% higher than year 2 costs.

You plan to keep the car for 10 years. For each car, calculate the present value of your costs. Which one ends costing less in present value terms?