help.

The Wrongway Ad Agency provides cars for its sales staft. In the past, the company has alwoys 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 replaccment fleet the company is considering two alternatives as follows: 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 $18,800 each. If this altemative is accepted, the following costs will be incurred on the fleet as a whole: At the end of three years, the fleet could be sold for one half of the original purchase price. Lease Afternative. The company can lease the cars under a three year lease contract The lease cost would be $59,500 per year (with the first payment due at the end of year 1). As part of this lease cost. the owner would provide all servicing and repalis. license the cars, and pay all the taxes. Wiongway would be required to make a $19750 securty depost 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. Wrongway/s required rate of return is 18%. 1. Use the total cost approach to determine the present value of the cash flows associated with each alternative (Nhegaffive amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal places. Round other intermedlate calculations and final answers to the nearest whole dollar amounts) 2. Which alternative should the company accept based on the calculations in part (1)? Lease of cars Purchase of fleet EXHIBIT 10-2 Present Value of an Annuity of $1 Pn=r1[1(1+r)n1] EXHIBIT 10-1 Present Volue of \$1 P=(1+r)nEn