please include formulas used.
The Riteway Ad Agency provides cars for its sales staff. 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 considering two alternatives: 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 $23,000 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 Repairs, first year Repairs, second year Repairs, third year $ 3,900 $ 1,800 $ 4,300 $ 6,300 At the end of three years, the fleet could be sold for one-half of the original purchase price. Lease alternative The company can lease the cars under a three-year lease contract. The lease cost would be $58,000 per year (the first payment due at the end of Year 1). As part of this lease cost, the owner would provide all servicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $14,500 security 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 is 17%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept? EXHIBIT 70-1 Present Value of St R Periods 4% 55 65 7 89 10% TEL 12% 139 145 15% 16% 173 189 205 22 23% 2 25 1 0.962 0.952 0943 0935 0925 0917 09090901 0893 088 0877 0370 0862 0855 0847 0800 083 0826 0820 08130806 0800 2 0925 0907 0990 0873 0.857 0842 0826 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 0683 0672 0661 0650 0540 3 0.889 0864 08400815 0794 0772 0.751 0731 07120693 06750658 0641 06240609 0.593 0.579 0564 0551 0537 052 0512 4 0.8550823 0792 0763 07350208 0683 0659 0636 0613 0592 0572 0552 0534 0546 0499 0482 04670451 0437 0423 0410 5 0.822 0.784 0747 0713 0681 0650 0621 05930567 0543 0.519 0497 04760456 0.437 0.419 0402 0.386 0370 0355 0341 0.328 6 0790 076 0705 0665 06300596 0564 055 050 0480 0456 0432 04100390 0370 0352 0.335 0.19 0.303 0289 0275 0252 7 0.760 0711 0.665 0623 0.583 0547 0513 0482 0452 0425 0.400 0.376 0354 0333 0314 0296 0279 0263 0249 0235 0222 0.210 0731 0677 0527 0582 0540 0.502 04670434 0404 0376 0351 0.327 03050285 0266 0249 0.733 0218 0204 0191 01790168 9 0.703 0645 0592 0544 0.500 460 0424 0.391 0361 0333 0308 0284 0263 0243 0225 0209 0194 01800167 0155 014 0131 10 0676 0614 0558 0508 0463 0422 036 0352 0322 0295 0270 0247 0227 0208 0191 0176 0.162 049 0137 0126 0116 0.102 11 0650 0585 0.527 0475 0429 0.388 0.750 0.317 027 0261 0237 021501950178 0162 0148 0150123 0112 030) 6094 CORD 12 0.625 0557 0497 0444 0397 0356 0319 0286 0257 0231 0208 017 018 0152 0137 0124 01120102 0092 ORI 0076 0060 13 0601 0530 0469 0415 0.368 0326 0.2900258 0229 0204 0182 0163 015 0110 0116 0104 0093 0084 0075 000 006 0055 14 0571 0505 0442 0388 0340 0.299 0263 0232 0205 0181 0160034101250111 0099 0088 00780069 0062 ONS 0000 0064 15 0555 0.481 0417 0362 0315 0275 0239 0209 018 0160 0100 0123 0108 0095 0084 0074 0065 0057 0051 0045 0040 0035 16 0534 0458 0194 0339 0292 0252 02180188 0163 0141 0123 0107 0093 001 007 0062 0054 0042 004200360022 0028 17 0500436 0.371 0817 0270 0231 0198 01700146 0125 008 0093 000 0000 0060 0052 0045 0039 034 0000 0026 0023 0494 04100350 0296 0250 0212 010 0153 0130 0111 0095 081 009 0059 0051 004 0038 0032 0028 0.0240021 00 19 0475 0396 0231 0277 0232 0124 0164 0138 0116 008 007 007000600051 0043 0037 00 0027 0023 00200012 001 20 0456 0377 02 025 02150178 019 0124 0104 007 0073 0061 0051 0043 0037 003 0026 002 00100016000012 21 0419 0.250 0.71 0242 0199 0164 0115 0112 009) 007 0064 0053 0014 0037 0031 0026 0.022 0.018 00150013 0011 0009 22 0422 0342 0278 0226 0184 0150 013 0801 0083 0068 0056 0046 0038 0032 0026 0072 0018 0015 0013 001 0009 0.007 23 0.406 026 0262 021 01700138 012 0091 0074 0060 0049 0040 0033 0027 0022 00 0015 0012 0010 0009 0007 0006 0.190 0.310 0247 0197 0158 01260102 0082 0066 0053 000 0035 0028 0073 0019 005 000 000 000 0.00 0.00 0.005 25 0375 0295 0733 0184 016 01160092 0074 0.059 0047 0038 0.030 0024 0020 0016 000 0010 0,009 0.007 0006 0005 0.004 26 0961 0281 0220 0172 0135 01050084 0066 0053 0042 003 0.025 0.021 001 0014 001 0009 0.007 0006, 0005 0004 000 27 0347 0268 0207 0161 0125 0098 0.076 0060 0047 0037 0.025 0.023 004 0014 0011 0009 0007 0.006 000 000 0003 0002 om 0.255 0196 0150 0116 0.090.0069 0054 0042 003 0026 0020 0046 0012 003 0.008 0006 0.005 0004 0000 0002 0.002 0321 0243 0185 084 0807 0082 0053 004 0037 0.029 0022 0017 0014 0011 0008 0.006 0005 0004 0003 0002 0.002 0.002 30 0308 0231 0174 031 0099 0075 0057 0044 0033 0.025 0.020 0015 0012 0009 0007 00050004 0.003 0.003 0002 0002 0.001 0208 0142 0097 0.067 00460032 0022 0.015 0011 0008 0.005 0004 0.003 0002 0.001 0001 0.001 0.000 0.000 0.000 0.000 0.000 ENSORS EXHIBIT 78-2 Present Value of an Annuity of $1 in Arrears: 16% 7039 Periods 45 50 6% 7 8 9% 10% 115 12 13% 14 15% 1 189 19% 20% 21% 276 239 24% 25% 1 0.962 0.952 0943 0935 0.926 0917 0.909 0.901 0893 0885 087708700862 0855 08470840 0833 0826 0820 08130806 0800 2 1886 1859 1833 1808 1783 1759 1736 173 1690 1668 1647 1626 16051585 1566 1547 1528 1509 1492 1474 14571440 3 2775 2.723 2673 2624 2577 2531 2487 2444 2.402 2361 2322 2283 2246 2210 2174 2140 2106 2074 2012 2011 1981 1952 4 36303516 3.4653387 3312 3240 31703.102 3037 2974 2 914 2855 2.798 2743 2690 2639 2589 2540 2494 2448 2404 2362 5 4452 4329 4212 41003993 3890 3791 3696 3.605 3517 3433 3352 3 274 3199 3127 3058 2991 2926 2864 2803 2745 2689 6 5242 5076 49174767 4623 4486 4355 4231 4111 3998 3.889 3784 3685 3589 3498 3410 3326 3245 31673092 3020 2951 7 60025786 5582 5.389 5206 5033 4868 4712 4564 4423 4288 4160 4039 3922 3812 37063605 3508 3.416 3327 3242 3161 6733 6 453 6210 5971 5747 5535 5335 5M6 4968 4.799 4639 4487 4346 4207 4078 3954 3837 3726 3619 3518 3421 3329 9 7135 7108 6 802 6515 5.247 5995 5759 5537 5328 532 4966 4772 4607 4451 4303 4363 40313905 3786 3673 3566 3463 10 8111 7722 2360 7024 6710 6418 6145 5889 5650 5426 5216 5019 4833 4659 4494 4319 4192 4054 3923 3799 3682 1571 11 87608 306 78877499 6,805 6 495 6 207 5 938 5687 5.453 5234 5029 4836 4656 4486 4327 4177 4035 3902 3.776 3656 12 938581638384 7943 7536 7161 6814 6.492 6194 5918 5.660 5 421 5197 4988 47934611 4439 4278 4127 3985 3851 3725 13 9.9869394 8853 R358 7904 7487 7103 6.750 6.424 6122 5842 5583 5342 518 4.910 4715 4533 4362 4203 4053 3912 3780 14 10.563 9.899 9.295 8745 8244 2786 7367 6 982 6 628 6202 6002 5724 5.468 5229 5008 4802 4611 4432 4265 4108 3962 3824 15 11118 10380 9712 9.108 8.559 8061 76067191 6811 6462 612 5.847 5575 5.324 5092 4876 4675 4489 43154153 4001 3859 16 11652 10838 10106 9447 851 8313 78247379 697 6604 6 265 5954 5.668 5.405 5162 4938 4730 4536 4357 4189 4033 3887 17 12166 11 274 10.477 9763 9122 8.548022 7549 2120 6729 6.373 6047 57495475 5.222 4990 4775 4576 4 391 4219 4059/3910 18 12659 11690 10828 10.059 9372 8756 8 201 2702 7250 5.840 6 467 6.128 5818 5534 5.273 5033 48124608 4.419 4747 40803928 19 13.134 12085 11.158 10.336 9604 8950 8365 7839 7366 6938 655061985.877 5.584 5.396 5070 4843 4635 4442 4263 40903.52 20 12 500 12 462 11470 10.594 9.818 9.129 8517953 7469 7025 6623 6259 5929 5628 5353 5101 4870 4657 4460427940 3954 21 14029 2821 11764 10836 10017 9292 8649 8075 756223026687 6312 5973 5665 5384 51274891 4675 4476 4292 4121 3903 22 14451 163 12.042 1061 10201 9442 8712 176 7645 7170 6743 6359 601 5696 5410 549 4909 4690 44884302413090 23 14857 3489 12.303 11272 10371 9580 8883 8266 7718 2230 6792 6 399 6044 57235432 517 4925 4703 4.499 431 A137 3.976 24 15 247 2550 1146910529 9707 8985848 7784 2283 6835 634 5073 5746 5.451 5182 4937 47134 507 4 4143 3681 25 15622 MM 12783 1654 10675 9.823 9077 8422 743 7330 6.73 6.464 097 5766 5467 51954948 4721 4514 432 412 26 15983 14375 11000 11826 10810) 9929 9161 848 7896 7372 6905 6491 618 5.783 54805 206 4956 4728 4520 4128 4150398 27 16336 1643 13.211 1982 1093510027 9237 8.548 7943 7400 595 6514 6136 57985492 5 215 4964 474 4524 4332 41543990 28 16.663 149 1406 12137 1105110116 9307 602 74 7441 6961 6534 515250 5.502 52234970 4.528 4.335 4157 02 29 994 151 15 12 278 1115810198 9370 8650 8022 7470 6083 6551 6166 5820 5510 5229 4975 470 4531 4317 4159 364 30 22 | 12 13 14 12 400 | 28 0 2 4 4 6 6 8 ! 1406 1903 6 6 6 1 5 4 5 6 7 7 4 479 4 40 45 34 43300 4 0 3 1 2 do 19703 17159 15046 13332 11925 1075707798951 8244 76 71056642 6233 5815548 5258 4997 470 4544 47 41607099 01
