Taglioni's Pizza Company has to choose a new delivery car from among three alternatives. Assume that gasoline costs $3 per gallon and that the firm's cost of capital is 12%. The car will be driven 12,000 miles per year.

Required:
1. Which car should the company purchase?
2. How would your answer change if the price of gasoline decreased to $2 pergallon?

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Car 1 Car 2 Car 3 Cost Mileage per gallon Useful life Salvage value S26,000 $20,000 12 $23,000 24 5 years 5 years 5 years S2,000 $500 S1,000