Problem 12-25 Net Present Value Analysis of a Lease or Buy Decision (L012-2) 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: 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 $16,000 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 $ 4,900 $ 2.800 $5,300 $ 7,300 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 $68,000 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 $14,000 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 18% Nayt 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 $68,000 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 $14,000 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 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the net present value of the cash flows associated with the purchase alternative? (Round your final answer to the nearest whole dollar amount. Enter negative amount with a minus sign.) Net present value Recuired? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the net present value of the cash flows associated with the lease alternative? (Round your final answer to the nearest whole dollar amount. Enter negative amount with a minus sign.) Net present value Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 3% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0943 0935 0926 0917 0.909 0.901 0893 0885 0877 0.870 0862 0855 0.8470840 0833 0826 0820 0813 0806 0.800 2 0925 0.907 0890 0.873 0.857 0.842 0.826 0.812 0.797 0783 0.769 0.756 0743 0731 0.7180.706 0694 0.683 0.672 0.661 0.650 0.640 3 0.889 0.864 0.840 0.816 0.794 07172 0751 0.731 0.712 0693 0.675 0658 0641 0624 0609 0.593 0.579 0.564 0.551 0.537 0.524 0512 4 0855 0.823 0792 0763 0735 0708 0683 0659 0636 0613 0.592 0.572 0552 0534 0.516 0.499 0.482 0.467 0.451 0.437 0423 0.410 5 0.822 0.784 0.747 0713 0.681 0.650 0.621 0.593 0567 0.543 0.519 0.497 0.476 0456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328 6 0.790 0.746 0705 0666 0630 0596 0564 0535 0507 0480 0.456 0432 04100390 0370 0.352 0335 0319 0303 0289 0.275 0262 7 0.750 0.711 0665 0.623 0.583 0547 0.513 0.482 0.452 0425 0.400 0376 0354 0333 0314 0296 0279 0263 0249 0235 0222 0210 8 0731 06770627 0582 0540 0.502 0.467 0.434 0.404 0376 0351 0327 0305 0285 0266 0249 0233 0218 0204 0191 01790168 9 0.703 0645 0592 0544 0.500 0.460 0424 0.391 0361 0333 0308 0284 0263 0243 0225 0.209 0194 01800167 0155 0.14 0134 10 0.676 0614 0.558 0508 0.463 0422_0386 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 0149 01370126 0.116 0107 11 0650 0585 0.527 0.475 0.429 0.388 0.350 0.317 0287 0261 0237 0215 01950178 0162 080135 0123 01120103 0094 0.086 12 0625 0557 0497 04440397 0356 0319 0286 0257 0231 0208 0187 0168 0152 01370124 01120102 0092 0.083 0.076 0069 130601 0530 0.469 0.415 0.368 0326 0.290 0258 0229 0204 0182 0163 015 01300116 0104 0093 0084 0075 0068 0.061 0055 14 0577 0.505 0.442 0388 0340 0.299 0.263 0232 0205 0181 0160 011 01250111 0099 0088 0078 0069 0062 0055 0049 0.044 15 0555 0.481 0.41 0.362 0315 0275 0239 0209 0183 0160 0.40 0123 0108 0095 0084 00140065 0057 0051 0045 0040 0035 16 0534 0458 0394 0.339 0292 0252 021801880163 0141012301070093 008 007 0062 0054 0047 00420036 0032 0028 17 05130436 0371 0317 0270 0231 0198 01700146 0125 0908 0093 000 0069 00600052 0045 0039 0034 0030 0026 0023 18 0494 0416 0.350 0296 0250 0212 01800153 013001110095 0081 0069 0059 0051 004 0038 0032 0028 0024 0.021 0018 190475 0.396 0331 0277 0232 0194 0164 01380116 0098 0083 007000600051 0043 0037 0031 0027 0023 0020 0017 OOM 200456 0377 0312 0258 02150178 014901240104 0087 0.073 0061 0051 0043 00370031 0026 0022 0.0190000M 0012 21 0439 0.359 0.294 0242 0199 0164 013501120093 0077 0.054 0053 004 0037 0.03100260022 0018 0.0150013 001 0009 22 0422 0.342 0278 0226 018401500123010100B3 0068 0056 0046 0038 0032 0.026 0022 0.098001500130011 0009 0.007 23 0406 0326 0262 0211 01700138 0.1120091 0074 0.060 0049 0040 0033 0027 0022 0018 0.0150012 0010 0009 0007 0.006 24 0390 0.310 0247 0197 0158 0126 0102 0082 0066 0053 0003 0035 0028 0023 0019 005 003 001 0008 0.007 0006 0.005 25 0375 0295 023301840146 01160092 0074 0059 004 0038 0030 0024 0020 00150013 0010 0009 0.007 0005 0005 0004 26 0361 0281 0220 0172 01350106 0084 0066 0053 0042 0.033 0026 0021 0017 004 001 0.009 0007 0006 0.005 0004 0.003 27 0347 0268 0207 0161 0125 0098 0076 0.060 0047 0037 0.029 0023 0.018 0014 00110009 0.007 0.006 0005 0004 0003 0002 28 0333 0255 0196 01500116 0090 0069 0054 0042 0033 0026 0020 00160012 0010 0.008 0005 0005 0004 0003 0002 0002 29 0321 0243 015 014 0107 0082 0063 0048 0037 0029 002200120014 0011 0008 0006 0005 0004 0003 0002 0002 0002 300308 0231 0.1740131 0099 0075 0057 0044 0033 0026 0.020 0015 0012 0009 0001 0.005 0004 0003 0003 0002 0002 0001 40 0208 0112 0097 0067 0046 0032 0.022 0015 001 0008 0.005 0004 0.003 0.002 0001 0.001 0.001 0000 0000 0000 0000 0.000 NORR DOBIT 120-2 Present of an Annuity of Sin Area - 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