The Riteway Ad Agency provides cars for its sales staff. Its 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 costing $$50,000$ per year $($the first payment due at the

end of Year $1).$ As part of this lease agreement, the owner

would provide all servicing and repairs, license the cars, and

pay the taxes. Riteway would make a $$10,500$ security deposit at

the beginning of the lease period, which would be refunded at

the end of the lease contract.

Riteway Ad Agency's required rate of return is $19\%.$

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 purchase alternative's net present value.

What is the lease alternative's net present value.

Which alternative should the company accept?