Final answer:
To compute the total life cycle cost of the cars, you sum the purchase and operating costs over the cars' lifespan. Car 1's total life cycle cost is 37,804.84 €, and Car 2's is 36,688.88 €. Car 2 is more economical over 4 years due to its lower operating and fuel costs.
Step-by-step explanation:
To estimate the total life cycle cost of each car, we need to calculate the sum of the purchase cost and all operating costs over the useful life of the car. The operating costs include fuel costs, which can be calculated by considering the fuel efficiency, the average fuel price, and the annual distance driven.
For Car 1, the total cost would include:
- Purchase cost: 21,000 €
- Operating cost per year: 0.14 €/mile * 16,000 miles = 2,240 € per year
- Fuel cost per year: (16,000 miles / 33 mpg) * 4.1 €/gallon = 1,961.21 € per year
- Total operating cost for 4 years: (2,240 + 1,961.21) * 4 years = 16,804.84 €
- Total life cycle cost: 21,000 + 16,804.84 € = 37,804.84 €
For Car 2, the total cost would include:
- Purchase cost: 23,000 €
- Operating cost per year: 0.10 €/mile * 16,000 miles = 1,600 € per year
- Fuel cost per year: (16,000 miles / 36 mpg) * 4.1 €/gallon = 1,822.22 € per year
- Total operating cost for 4 years: (1,600 + 1,822.22) * 4 years = 13,688.88 €
- Total life cycle cost: 23,000 + 13,688.88 € = 36,688.88 €
Comparing the total life cycle costs of both cars, Car 2 is less expensive over the 4-year period despite its higher purchase price due to lower operating and fuel costs.