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 stai. cast, the company has always purchased its cars from a dealor and then sold the cars after three years of use. The conpany's presen cet of cars is three years old and wir be sold very shortiy. To promide is replacement fleet, the company is conslitering two alternotives: Purchase alternetive: The company can purchase the cars, as in the past, and sell the cars after three years of use Ten cars will be needech, which can be purchased at a discounted price of $30,000 each, it this atternative is accepted, the foilowing cosis wil bet incurred on the fleet as a whole: At the end of three years, the fleet could be sold for one-half of the onginal purchase prices. first payment due at the end of Year i) As part of this lease cost, the owner would provide aif servicing and repain, license the cant be refunded when the cars were tetumed to the owner at ithe end of the lease contract Retewiny And Agencys required rate of retain is 14% Required: 2. What is the net present valie of the cash llows associated weth the lease ollemative? 3. Which allemative should the company occepe? Ait the end of three years, the fleet could be sold for one half of y poriginal puichose price. tease alternative: The company can lease the cars undera three year hease contract. The foose cost mould be 565000 per year ithe be refunded when the cars were retarned to the owner at the end of the kase contract. Riscway Ad Agencys requihed fate of refien is 14% Aequired: 3. Which attertivilive should the compary eccept? At the end of three years, the fleet could be sold for onet in of the orighat purchase price. Lease efrernative: The compary can lease the cars under a threeycar lease contract, The lease cost would be 565000 per year ithe firs payment due at the end of Year is As part of this lease cost, the ownor woukd provide all servicing and repoers, ficense the cars. and pay oil the taxes. Rileway would be requiled to make a $12500 security deposit at the beginning of the iease period, which whuld be refunded wher the cars were returned to the owner at the end of the lease contract. Sineway Ad Agency's required rate of return is 14x Required: D. Which allengetive should the compery accept