1. A firm must decide whether to provide their sales personnel with company-owned automobiles or to pay them a mileage allowance and have them drive their own vehicle. The company provides a new car to their sales staff every 4 years, and thus this analysis is performed for a 4-year horizon.

A new automobile costs $29,000 to purchase and can be resold for $14,000 after 4 years. The annual operating cost for a vehicle (which includes gas, insurance, car wash, etc.) is $30/month and $0.12 per mile. The firm incurs the operating cost if it were to buy the vehicle and give it to the salesperson.

If a salesperson drives his/her own car the firm will reimburse them $0.56 per mile. The company does not incur any operating costs.

Rebecca is a salesperson. She is expected to drive 1,000 miles per month (48,000 miles for 4 years).

• If Rebecca uses her car, she will bill the firm for mileage for 1,000 miles - end of every month.
• If Rebecca uses a company car, she will bill the firm for $30 for maintenance and an additional $120 for gas mileage for 1,000 miles - end of every month.

The firm uses an interest rate of 15% per year compounded monthly.

Compute the Present Worth of the two alternatives. Should the firm buy a car for Rebecca, or let her bill the firm monthly for use of her own car? (calculate using a financial calculator)