ework Problem 13-25 Net Present Value Analysis of a Lease or Buy Decision [L The Riteway Ad Agency replacement fleet, the company is considering two alternatives Purchase alternative: The company can purchase the cars, as in the past, and sell the provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then 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 cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $21,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: Annual cost of servicing, taxes, and licensing 3,700 Repairs, first year Repairs, second year Repairs, third year s 1,600 $ 4,100 6,100 At the end of three years, the fleet could be sold for one-half of the original purchase price aiternative: The company can lease the cars under a three-year lease contract. The lease cost would be $56,000 per year (the first payment due at the end of Year 1), As part of thia lease cost the owner would provide all servieing and repairs, 1icense the cars, and pay ali the taxes. Riteway would be required to make a 13,500 security deposit at the beginning of the lease period, which would be at the end of the lease contract. refunded when the cars were returned to the owner Riteway Ad Agency's required rate of return is 15%. 8.2, to determine the appropriate discount factor(s) using tables Prev 6or 7 Next>