annual cost 3,600

repairs first year 1,500

repairs second year 4,000

repairs third year 6,000

Problem 12-25 (Algo) Net Present Value Analysis of a Lease or Buy Decision [LO12-2] The Riteway Ad Agency provides cars for its sales stuff in the past. the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company's present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considening two altematives? Purchase alternative: The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $20,000 each. if this alitemative is accepted, the following costs will be incurred on the flect as a whote At the end of three years, the fleet could be sold for one-haif of the original purchase price. Lease oltemative: The company can lease the cars under a three-year lease contrat. The lease cost would be $55.000 per year (the first payment due at the end of Year 0 As part of this lease cost, the owner would provide all selving and repairs, license the cars. and pay all the taxes. Riteway would be required to make a $13,000 securt deposit at the beginning of the lease period, which would be refunded when the cars were returned to the owner at the end of the lease contract. Riteway Ad Agency's required rate of return ti 19 ig: Click here to view Expimatrzal and Explat Rala to determine the appopnate discount factor(s) using tables 1. What is the net present value of the cash flows assocleted with the purchase alternative? Required: 2 What is the net present value of the cash fions associated with the iease diternative? 3. Which altematlve shculd the company accept? Complete this question by enterlng your answers in the tabs below