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 $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 Repairs, third year $ 3,400 $ 1,300 $ 3,800 $ 5,800 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 148-2, 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 Present Value of $1; ezto-cf-media.mheducation.com MQuestion 3-Test Sc Connect .com/Media/Connect, Pro ((1+r)) Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 2 0907 0.962 0.952 0.943 0.925 0.935 0.890 0.873 0.926 0.917 0.909 0.901 0.893 0.857 0.842 0.826 0812 0.797 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 5 0822 0.784 0.747 0.713 0.681 0.650 6 7 8 9. 10 0.790 0.746 0.705 0.666 0.630 0,760 0.711 0.665 0.623 0.731 0.677 0.627 0.582 0.703 0.645 0.592 0544 0.676 0.614 0558 0.508 11 0.650 0585 0.527 0475 0.429 0.388 12 0.625 0.557 0.497 0.444 0.397 0356 13 0.601 0530 0469 0415 0.368 0.326 0.204 14 0577 0.505 15 0442 0.388 0.340 0355 0481 0417 0362 0315 0.299 16 0.188 17 18 19 20 21 22 23 24 0.390 0310 0247 25 26 27 0.037 28 29 30 0308 0.231 0.174 0.131 0.063 ODER 0057 40 0.022 14% 15% 16% 17% 18% 19% 20% 21% 22% 0.885 0.877 0.870 0.862 0.855 23% 24% 25% 0.847 0.840 0.833 0.826 0.820 0.783 0.769 0.756 0.743 0.731 0.813 0.806 0.800 0.718 0.706 0.694 0.683 0.672 0.661 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.613 0.592 0372 0.552 0.3534 0516 0.499 0.621 0.482 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0419 0.402 0.386 0.370 0.355 0.341 0467 0451 0.437 0.423 0.410 0.596 0.564 0.535 0.507 0.480 0.456 0.328 0.583 0.547 0.513 0482 0.452 0.425 0.400 0432 0410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.376 0.275 0.262 0.540 0502 0354 0.313 0.314 0.296 0.279 0467 0.434 0.404 0.263 0.376 0.351 0.249 0.235 0.222 0.210 0.327 0.500 0.460 0.424 0.391 0361 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.333 0.308 0.284 0.463 0422 0386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134 0.191 0.350 0317 0.287 0.176 0.162 0.261 0237 0.215 0.195 0.178 0.149 0.137 0.126 0.116 0.107 0.162 0319 0.286 0.257 0.231 0.208 0.148 0.135 0.123 0.112 0.103 0.094 0.086 0.187 0.290 | 0.258 0.229 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.076 0.069 0.263 0.232 0.275 0.205 0.084 0.181 0.160 0.141 0.075 0.068 0.125 0.111 0.061 0.055 0.239 0.099 0088 0.078 0.069 0.062 0.209 0.534 0458 0.394 0.339 0.292 0.252 0218 0.183 0.160 0.140 0.123 0.055 0.049 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0513 0436 0371 0317 0.270 0.231 0.198 0.163 0.141 0.123 0.107 0.040 0.093 0081 0.071 0.062 0.054 0.170 0.146 0.125 0.494 0416 0.350 0.296 0.250 0.212 0.180 0.153 0.042 0.108 0.093 0.080 0.069 0.060 0.036 0.032 0.052 0.045 0475 0.396 0331 0.277 0.232 0.194 0.164 0.138 0.116 0098 0.083 0.130 0.111 0.019 0034 0.030 0.026 0.023 0.095 0.081 0.069 0.059 0.051 0456 0.377 0312 0.032 0.028 0.024 0.021 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.070 0.060 0.051 0.018 0.043 0.037 0.031 0.027 0439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 0093 0.077 0.064 0.053 0.044 0.037 0.031 0.073 0.061 0.023 0.020 0.051 0.043 0.037 0.031 0.026 0.022 0.017 0.014 0422 0342 0.278 0019 0.016 0.014 0.012 0.226 0.184 0.150 0.123 0.101 0083 0.068 0056 0046 0038 0026 0.022 0.018 0406 0.326 0.015 0.013 0.011 0.262 0.009 0.211 0.170 0.138 0.112 0091 0.074 0.060 0.049 0.032 0.026 0.022 0.018 0.015 0.013 0.011 0.009 0.197 0.158 0.126 0.102 0.082 0.066 0.040 0.033 0.027 0022 0018 0015 0.012 0.010 0.009 0.007 0.006 0.007 0.375 0.295 0233 0.184 0.146 0.116 0.092 0.074 0.059 0053 0.043 0015 0028 0.023 0019 0.015 0.013 0.010 0.008 0.361 0281 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.047 0.038 0.030 0024 0.020 0.007 0.006 0.005 0.016 0.013 0.010 0.009 0347 0.268 0.007 0.006 0.005 0.207 0.161 0.125 0.098 0.076 0060 0.047 0.021 0.017 0.014 0.011 0.009 0.007 0.333 0255 0.196 0.150 0.116 0.000 0.069 0.054 0.042 0029 0.023 0.006 0.005 0.004 0003 0018 0014 0011 0.009 0.007 0.006 0.005 0321 0243 0.185 0.141 0033 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.004 0003 0.002 0.107 0082 0037 0.029 0.022 0.017 0014 0.011 0.008 0.006 0.005 0.004 0.005 0.002 0.002 0.002 0.003 0.002 0.002 0.099 0.075 0.044 0033 0026 0020 0015 0012 0.009 0.208 0.142 0.097 0.067 0.046 0.032 0.015 T001 Too Tame TomT 0.007 0.005 0004 0.003 0.001 Tom Tomm 0.650 0.640 0.524 0512 0.305 0.263 0.044 0.035 0.047 0028 0.044 0038 0.004 Present Value of an Annuity of $1 in Arrears ((1+x))" Periods 4% 5% 69 7% 8% I 0.962 0.952 0.943 0.935 2 1886 3 2.775 1859 2.723 1.833 1.808 4 5: 3.993 6 4623 4.231 2 6.002 8 6.733 9 10 5.786 5.582 5.389 5.206 6463 6.210 5.971 5.747 7435 7.108 6.802 6515 6.247 8.111 7.722 7360 7.024 6.710 5033 4.868 4.968 12 8.760 8306 7887 7.499 7.139 6.805 9.385 8863 8.384 7.943 7536 7.161 13 9.986 9394 8.853 8.358 7.904 7487 14 10.563 9399 9.295 8.745 8.244 7.786 7367 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 | 6.811 16 11.652 10.838 10.106 9.447 8.851 8.313 7824 17 12.166 11.274 10.477 9.763 9.122 8.544 18 12.659 11.690 10.828 10.059 19 20 21 22 23 24 25 26 27 28 7.984 29 8022 30 40 9% 10% 11% 12% 13% 0.926 0.917 0.909 0.901 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.893 0.885 0877 0.870 0.862 0.855 0.847 1.783 1.759 1.736 1.713 1.690 1.668 0.826 0.820 0813 0.806 0.800 1.647 1626 1.605 1585 1566 2.673 2.624 2.577 2.531 1547 1528 1.509 1492 1474 1457 1440 2.487 2.444 2.402 2.361 2.322 2.283 3.630 3546 3.465 3.387 3312 3.240 3.170 3.102 3.037 2.246 2.210 2.174 2.140 2.106 2074 2.042 2011 1981 1952 4.452 4329 4212 4.100 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 3.890 3.791 2.404 2.362 3.696 3.605 3517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 5.242 5.076 4917 4,767 4.486 4355 2.864 2.803 4.111 2.745 2.689 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 4.712 4.564 3.092 3.020 2951 4423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3327 3.242 3.161 5.335 5.335 5.146 4.799 4.6394,487 4.344 4.207 4078 3.954 3.837 5.995 5.759 5.537 5.328 5.132 4.946 4.772 3.726 3.619 3518 3421 3.329 4607 4.451 4.303 4.163 4031 6.418 3.905 3.786 6.145 5.889 5.650 5.426 5.216 3.673 3.566 3,463 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 6495 6.207 5.938 3.799 3.682 3.571 5.687 5453 5.234 5.029 4.836 4.656 4.456 4.327 4.177 4.035 3.902 3.776 3656 6814 6.492 6.194 5.918 5660 5.197 4.988 4.793 4.611 4.439 4.278 4.127 7.103 3.985 6.750 6.424 6.122 5842 5.583 5.342 5.118 4.910 4.715 4.533 3851 3.725 6.982 6.628 6.302 4.362 4.203 4.053 3912 3.780 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4432 4.265 6462 4.108 3.962 3.824 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4489 7379 6974 6.604 6.265 5.954 5.668 5.405 4315 4153 4.001 3859 5.162 4.938 4.730 4.536 4.357 4.189 8.022 7549 7.120 6.729 6.373 6047 4.033 3887 9.372 5.749 5.475 5.222 4.990 4.775 4376 4.391 8.7568.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 4.219 4.059 3910 13.134 12.085 11.158 10.336 9.604) 5.033 8.950 8.365 7839 7.366 6938 4.812 4.608 4.419 4.243 4.080 3.928 13.590 12.462 11.470 10.594 9818 6.550 6.198 5877 5.584 5.316 5070 4.843 4.635 4.442 4.263 4.097 3.942 9.129 8514 7.963 7469 7.025 14.029 12.821 11.764 10.836 10.017 9.292 6.623 6.259 5.929 5.628 5353 5.101 4.870 4.657 4.460 4.279 8.649 8.075 7562 7.102 4.110 3.954 14.451 13.163 12.042 11 061 10.201 9.442 6.687 6312 5.973 5.665 5.384 5.127 4891 4.675 8.772 8.1767645 7.170 6.743 6359 6.011 4.476 4.292 4.121 3.963 14.857 13.489 12.303 11 272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6044 5696 5410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 15.247 13.799 12.550 11 469 10.529 9.707 8.985 8.348 7.784 7.283 5.723 5.432 5.167 4.925 4.703 4.499 4311 4.137 3.976 6.835 15.622 14.094 12.783 11.654 10.675 9823 9.077 6434 6073 5.746 5451 5.182 4.937 4.713 4507 8.422 7.843 7330 6373 4.143 3.981 6464 6.097 15.983 14.375 13.003 11826 10.810 9.929 9.161 8.488 7896 7372 6906 6.491 6.118 5.783 5.766 5.467 5.195 4.948 4.721 4514 4.323 4.147 3985 16.330 14.643 13.211 11.987 10.935 10.027 9.237 5.480 5.206 4.956 4.728 4520 8.548 7.943 7409 6.935 4.328 4.151 3988 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 6.514 6.136 5.798 5.492 5.215 4964 4.734 4.524 4332 4.154 3.990 7441 6.961 6534 6.152 16.984 15.141 13591 12.278 11.158 10.198 9.370 8.650 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3992 7470 6.983 17.292 15372 13.765 12.409 11.258 10 274 9427 8.694 8.055 6551 6.166 5820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 19.793 17.159 15 046 13.332 11.925 10.757 9.779 8951 0.840 0.833 5421 4318 7.496 7.003 6.566 6.177 5.829 5.517 5235 4.979 4.746 4.534 4.339 4.160 3.995 8.244 7634 7.105 6.642 6.233 5871 5.548 5.258 49900 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? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value Required 1 Required 2 > 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 lease alternative? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value 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 Which alternative should the company accept? Lease alternative Purchase alternative