Mark and David are two friends who are both planning to buy a new car. They are choosing between two models of Ford's flagship vehicle: the 2017 Ford Fusion SE and the 2017 Ford Fusion Hybrid. The Ford Fusion SE has fuel economy of 8.7 L/100 km. The purchase price of the vehicle is $22,000. The Ford Fusion Hybrid has fuel economy of 5.6 L/100 km. The purchase price of the vehicle is $25,000. Both cars will last for 10 years and are assumed to have a resale value of $0 after that time. Assume that the cars are otherwise identical apart from the difference in fuel consumption. David has recently lost his job. Without any savings, he is required to take out a loan to buy his new car. For his car purchase decisions, he uses an annual discount rate of 25%, equal to the interest rate on his car loan. For David, what will be the present value of the costs of buying and running the Ford Fusion SE? The Ford Fusion Hybrid? Which car will David buy ?

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To determine the present value of the costs of buying and running the Ford Fusion SE and the Ford Fu... View the full answer