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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

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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:Annual cost of servicing, taxes, and licensing$3,200Repairs, first year$1,100Repairs, second year$3,600Repairs, third year$5,600
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 14B-1 and Exhibit 14B-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?
Complete this question by entering your answers in the tabs below.
What is the net present value of the cash flows associated with the purchase alternative? (Enter negative amount with a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)
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