The Riteway Ad Agency provides cars for its sales staff. In the past, the company has...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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 $21,000 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 $3,700 $ 1,600 Repairs, second year $ 4,100 Repairs, third year $ 6,100) 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 $56,000 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 $13,500 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 15%. 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? Complete thie nusetinn hu entarinn unur aneware in the tahe holow 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 $21,000 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 $3,700 $ 1,600 Repairs, second year $ 4,100 Repairs, third year $ 6,100) 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 $56,000 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 $13,500 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 15%. 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? Complete thie nusetinn hu entarinn unur aneware in the tahe holow
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
FCAT scores and poverty. Refer to the Journal of Educational and Behavioral Statistics (Spring 2004) study of scores on the Florida Comprehensive Assessment Test (FCAT), presented in Exercise 11.30...
-
Ten-year-old Marla says her classmate Bernadette will never get good grades because she's lazy. Jane believes that Bernadette tries but can't concentrate because her parents are divorcing. Why is...
-
2. (10 points) How much would $750,000 due in 10 years be worth today if the discount rate (interest rate - time value of money) were 3.75%? Steps (points)
-
Use Excel's Solver to determine which of the below 3 strategies yield the minimal total cost. (see the attached image) Hints: Part 1: use level production of 60 tankloads every month and supplement...
-
18. To set up CNC tools while the machine is running, the operator would probably use A. calipers. B. a rule and diameter chart. C. a CMM. D. a tool presetter.
-
The following information about the payroll for the week ended December 30 was obtained from the records of Saine Co.: Salaries: Sales salaries Deductions: $180,000 Income tax withheld $65,296...
-
You have just been hired as the chief executive officer (CEO) in a medium-sized organization. The organization is not suffering financially, but neither is it doing as well as it could do. This is...
-
The following is the selling price and cost information about three joint products: X Y Z Anticipated production 1 2 , 0 0 0 lbs . 8 , 0 0 0 lbs . 7 , 0 0 0 lbs . Selling price / lb . at split - off...
-
calculate the maximum bending compressive stress of the following section under NEGATIVE bending moment of 216KN.m. 216mm 416mm 316mm 115mm
-
Need assistance with the following forms: 1040 Schedule 1 Schedule 2 Schedule C Schedule SE Form 4562 Form 8995 Appendix B, CP B-3 Christian Everland (SS number 412-34-5670) is single and resides at...
-
Using Week 3, Handout 1, discuss the 3 approaches to data collection presented: counting, note taking, collecting products or work samples. Discuss the benefits and drawbacks of each type of note...
-
Compare these with the lessons from the Beth Israel, Sears, and J. C. Penney stories. Which are the same?
-
What lessons for managing change can you take from your story?
-
Are there any further lessons embedded in these stories that could apply to future changes in which group members may be involved?
Study smarter with the SolutionInn App