Ms$.$ Monica Taylor, Vice President of Marketing has requested you to assist her in making a financially

correct decision regarding providing an automobile for certain members of her sales group. She is

considering three mutually exclusive alternatives centered on the extent of usage of the car for business

purpose $$ as measured by the miles driven over three years.

Following competing alternatives are being considered.

Employee Reimbursement $($E Option$)$: Employee would submit monthly report indicating the mileage used

for business. The firm will reimburse at $$1\mathrm{.}50$ per mile, at end of every month.

Purchase Alternative: The automobile being considered for acquisition is $2024$ BMW X$5$ xDrive $50$e

SUV. The automobile being considered acquisition is $2024$ BMW X$5$ xDrive $50$e SUV. A dealer has

offered to sell it for $$82,000$ inclusive of sales tax and other charges like title, document fee etc.

Ms$.$ Taylor has indicated that it is the company$$s policy to replace the car every three years. This is in line

with analysis planning horizon of $3$ years.

The expected resale value of the car is $$57,000$ at the end of $3$ years, assuming the miles driven is

$36,000$ or less over that period. The resale value will be adjusted $$ reduce by $$0\mathrm{.}39$ for every mile driven

more than $36,000$ miles. If the miles driven is less than $36,000$ miles, the resale value will not be

adjusted.

Lease Alternative: Initial down payment including $$bank fee$$ is $$10,000.$ Lease term $=36$ months.

Monthly lease payment $($payable beginning of month$)$ is $$750.$ Miles allowed is $36,000$ over the $36-$month

lease period. Payment at lease termination is $$3,200$ to prepare the vehicle for sale to a different

customer; the payment is due at the end of the $36$th month. Charge for excess mileage is $$1\mathrm{.}00$ per mile

inclusive of taxes. The excess mileage charges are due to the dealership at the end of the lease term

$($end of $36$th month$).$ The lease contract does not allow you to buy the vehicle at the end of lease

termination.

Other Key Assumptions:

$$ EPA Estimate for fuel efficiency of the car considered $=25$ mpg combined HW$/$City$.$

$$ Average cost of Gasoline $$3\mathrm{.}60/$gallon$.$

$$ Car wash & other miscellaneous maintenance charges can be ignored.

$$ The mileage spread is linear. As an example, if an employee logs $45,000$ miles over $3-$years, we

assume that the monthly usage is $45,000/36=1,250$ miles.

$$ The firm uses an interest rate of $9\%$ CM for discounting purposes $($that is $0\mathrm{.}75\%$ per month$).$

You are required to recommend the optimal alternative for following employees.

You must support your decision with proper analysis as discussed in the classroom. The analysis should

show PV of each of the three alternatives for the three employees listed.

a$)$ Employee ID#$24$ is expected to log in $24,000$ over the $3-$year duration.

b$)$ Employee ID#$36$ is expected to log in $36,000$ over the $3-$year duration.

c$)$ Employee ID#$60$ is expected to log in $60,000$ over the $3-$year duration.