Suppose the McWong family is deciding between two possible new car options for a car to last them 15 years: Option A: Toyota Prius C. Option B: Toyota Yaris. Each option will provide the same amount of driving benefits over the next fifteen years. )The costs, however, differ for each car. Suppose the Prius costs $28,000 to purchase plus $300 annual servicing plus $800 for fuel annually. The Yaris costs $20,000 to purchase plus $300 annual servicing plus $1,500 for fuel annually. Fuel costs for each are based on travelling 15,000km annually and paying $1.50 per litre. a) Use an 8% discount rate to calculate the Present Value of the costs of the Prius and the Yaris and state which option the McWongs should choose. (5 marks) b) Now use a 3% discount rate to calculate the Present Value of the costs of the Prius and the Yaris and state which option the McWongs should choose. (2 marks) c) Describe some characteristics (other than a different discount rate) that might lead to a different family always choosing the Prius or always choosing the Yaris. (3 marks) Hint: you might find it useful to create a table in a spreadsheet program (eg Excel or Numbers) so that you can use the formula features to make the calculations easier.

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