Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 replacement Teet, the company is considering two alternatives: Purchase alternativer 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 $17,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as wholo: Annual cost of servicing, taxes, and consing Repairs, first year Repairs, second year Repairs, third year $5,000 $2,500 55,400 57,400 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 three year lease contract. The lease cost would be $69,000 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 $14,500 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 19%. Click here to view Exhibit 1431 and Exhibit 143-2: to determine the appropriate discount factor(s) using tables Required: ter 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 gate of return is 19%. 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 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 minus sign. Round your final answer to the nearest whole dollar amount.) Net present value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

=+e. User: uses the item or service.11

Answered: 1 week ago