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:

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 $$51,000$ 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 $$11,000$ 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 $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

What is the net present value of the cash flows associated with the purchase alternative?

What is the net present value of the cash flows associated with the lease alternative?

Which alternative should the company accept?