Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount rate is 10.8%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown below, which should it choose? (Note: dollar amounts are in thousands.)

Model

Old Reliable Short and Sweet

Year 0

$200$101

Year 1

$4.1$2.1

Year 2

$4.1$2.1

Year 3

$4.1$2.1

Year 4

$4.1$2.1

Year 5

$4.1

Year 6

$4.1

Year 7

$4.1

Based on the costs of each model, which should it choose?

1. Gateway Tours should choose Old Reliable because the equivalent annual annuity
2. of its costs is smaller.
3. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller.
4. Gateway Tours should choose Old Reliable because it lasts longer.
5. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of
6. its costs is smaller.