teway Ad Agency provides cars for its sale: In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The compan resent fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two natives: Purchase alternative: The company can purchase cars, as in the past, and sell the cars after three years of Ten cars will be needed, which can be purchased at a discend price of $26,000 each. If this alternative is accepted, the llowing costs will be incurred on the fleet as a whole: Annual cont of servicing, taxes, and licensing Repairs, first year Repairs, second year Repairs, third year $ 4,200 $ 2.100 $ 4,600 $ 6,600 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 $61,000 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 $10,500 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 20% Click here to view Exhibit 148-1 and Exhibit 14B-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? Prev 1 of 1 Next