The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and the 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 $18,000 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 $ 3,400 $ 1,300 $ 3,800 $ 5,800 Repairs, third year 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 $53,000 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 $12,000 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 14%. Click here to view Exhibit 14B-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? EXHIBIT 14B-1 2 Mysolidworks - Offi... Learning Center Google Docs Collegelnvest Direct... Grammarly (3581) YouTube 1 Present Value of $1; (1+r)" Periods 4% 5% 6% 1 0.962 2 0.925 3 0.952 0.943 0.907 0.890 0.889 0.864 0.840 4 0.855 0.823 7% 8% 0.935 0.926 0.873 0.857 0.816 0.792 0.763 5 0.822 0.784 6 0.790 0.746 0.705 7 0.760 0.711 8 0.731 0.677 9 0.703 0.645 0.747 0.713 0.666 0.665 0.623 0.627 0.592 9% 10% 0.917 0.909 0.842 0.826 0.794 0.772 0.751 0.735 0.708 0.681 11% 0.901 12% 13% 14% 0.893 0.885 0.877 0.812 0.797 0.783 0.769 0.731 0.712 0.693 0.675 0.683 0.659 0.636 0.613 0.650 0.621 0.593 0.567 0.543 0.519 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 16 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 20 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 21 0.439 0.359 0.294 0.242 0.199 22 0.422 0.342 0.278 0.226 23 0.406 0.326 24 0.390 0.310 25 0.375 0.295 26 0.361 27 28 29 30 40 15% 16% 17% 18% 19% 20% 21% 22% 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.756 0.743 0.731 0.718 0.706 0.694 0.683 0.672 0.658 0.641 0.624 0.609 0.593 0.579 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.467 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0.235 0.222 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.148 0.135 0.123 0.112 0.103 0.124 0.112 0.102 0.092 0.083 0.116 0.104 0.093 0.084 0.075 0.068 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.071 0.062 0.054 0.047 0.042 0.036 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.037 0.031 0.027 0.023 0.020 0.017 0.014 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.012 0.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.018 0.015 0.013 0.011 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.262 0.211 0.170 0.138 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.012 0.010 0.247 0.009 0.007 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.010 0.008 0.233 0.007 0.006 0.184 0.005 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.281 0.006 0.005 0.004 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.005 0.347 0.004 0.003 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 23% 24% 25% 0.813 0.806 0.800 0.661 0.650 0.640 0.564 0.551 0.537 0.524 0.512 0.451 0.437 0.423 0.410 0.355 0.341 0.328 0.289 0.275 0.262 0.210 0.168 0.134 0.237 0.215 0.195 0.178 0.162 0.187 0.168 0.152 0.137 0.182 0.163 0.145 0.130 0.141 0.125 0.123 0.107 0.093 0.081 0.116 0.107 0.094 0.086 0.076 0.069 0.061 0.055 0.049 0.044 0.040 0.035 0.032 0.028 0.093 0.080 0.023 0.081 0.069 0.018 0.070 0.060 0.051 0.043 0.051 0.009 0.011 0.009 0.007 0.006 14B-2 Present Value of an Annuity of $1 in Arrears; 1 (1+r)" Periods 4% 5% 1 0.962 6% 0.952 0.943 2 1.886 1.859 1.833 3 2.775 2.723 2.673 2.624 2.577 4 3.630 3.546 3.465 3.387 3.312 3.240 7% 8% 9% 10% 11% 12% 0.935 0.926 0.917 0.909 0.901 0.893 1.808 1.783 1.759 1.736 1.713 1.690 2.531 2.487 2.444 2.402 3.102 3.037 3.170 5 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 7 6.002 5.786 5.582 5.389 8 6.733 6.463 6.210 5.971 9 7.435 7.108 6.802 10 8.111 7.722 7.360 6.515 7.024 11 8.760 8.306 12 9.385 8.863 13 9.986 14 15 16 17 11.652 10.838 10.106 9.447 12.166 11.274 10.477 9.763 8.851 9.122 18 19 12.659 11.690 10.828 10.059 13.134 12.085 11.158 10.336 9.604 9.372 20 21 22 13.590 12.462 11.470 10.594 9.818 14.029 12.821 11.764 10.836 10.017 14.451 13.163 12.042 11.061 10.201 23 24 25 26 27 28 29 30 40 14.857 13.489 12.303 11.272 10.371 9.580 15.247 13.799 12.550 11.469 10.529 9.707 15.622 14.094 12.783 11.654 10.675 9.823 9.077 15.983 14.375 13.003 11.826 10.810 9.929 9.161 16.330 14.643 13.211 11.987 10.935 10.027 9.237 16.663 14.898 13.406 12.137 11.051 10.116 9.307 16.984 15.141 13.591 12.278 11.158 10.198 9.370 17.292 15.372 13.765 12.409 11.258 10.274 9.427 19.793 17.159 15.046 13.332 11.925 10,757 9.779 13% 14% 15% 16% 17% 18% 19% 20% 21% 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 1.668 1.647 1.626 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1.457 2.361 2,322 2.283 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 7.887 3.571 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203. 4.053 3.912 3.780 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 3.859 4.153 4.001 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 8.756 8.201 7.702 7.250 6.840 6.467 6,128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954 9.292 8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 3.976 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981 8.422 7.843 7,330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 8.4887.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.160 3.995 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 22% 23% 0.820 0.813 0.806 24% 25% 0.800 1.605 1.440 2.246 3.421 3.329 3.566 3.463