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 $24,000 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 Repairs, second year Repairs, third year $ 4,000 $ 1,900 $ 4,400 $ 6,400 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 a three-year lease contract. The lease cost would be $59,000 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 $15,000 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 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors usi Excel or a financial calculator, your answer may be different enough due to rounding that the system will mark it wrong.) 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? EXHIBIT 12B-1 Present Value of $1; 1 ((1+r)) 14% Periods 5% 5 6% 7% 8% 9% 10% 11% 12% 13% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 9.07 0.731 0.7180.706 0.706 0.694 0.694 0.683 0.672 0.661 0.650 0.640 3 0.889 0.864 0.840 0.816 0.794 | 0.772 0.772 0.751 0.731 0.712 0.693 0.019 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0.512 | 4 4 0.855 0,823 0.792 0.763 0.735 0.708 0.683 ciun 0.683 0.659 0.659 0.636 0.613 0.572 0.552 more 0.592 0.516 wo Wote 0.552 0.534 0.482 0.499 0.467 0.451 0.437 0.410 Www Www 5 0.423 Nive 0.822 0.784 0.747 0.713 0.681 Vio 0.650 0.621 0.593 no 0.567 0.543 0.519 de 0.497 0.476 0.456 14:42 0.437 0.419 0.402 0.386 0.370 0.355 0.341 TW 6 0.790 0.746 0.328 142 141 1404 0.746 0.705 0.666 0.630 Warn 0.596 0.564 0.535 0.480 ed 0.507 0.456 www.170 Wine www aware 0.432 0.410 0.410 0.390 0.390 0.370 0.352 0.335 0.319 0.303 0.289 **** 0.275 0.262 7 0.760 0.711 400 40 0.623 0.665 0.583 0.547 0.513 Me 0.425 0.482 0.452 Dance W 0.400 VW 0.376 0.354 0.333 22 To 0.314 0.296 0.296 0.279 0.263 0.249 0.235 0.222 0.210 8 0.731 0.677 2017 0.627 0.582 0.540 0.502 0.467 0.434 0.376 0.351 0.404 View Dive when Vivre Vitor Very Sie 0.327 0.305 0.285 0.218 0.204 0.191 Vio 0.266 0.249 0.233 9 0.703 0.179 0.168 Video 0.645 0.592 V.200 0.2 0.5440.500) 0.460 Die 0.40 0.12 Tur 0.424 0.391 0.361 0.333 0.308 W.100 0.284 0.263 0.243 0.225 0.209 40 0.194 *** 0.180 0.167 0.155 0.134 0.144 10 0.676 0.614 0.558 0.508 0.463 0.422 Www 0.322 0.295 au Wall W 0.386 0.352 Wewe 0.270 0.247 0.208 0.227 0.191 0.176 0.162 0.149 0.116 0.137 0.126 0.107 20 W 11 Mouw 1 0.650 0.585 0.475 0.527 au We 1 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.162 0.148 0.148 0.135 0.123 0.123 0.112 404 12 12 0.094 0.086 2007 0.625 0.557 0.103 0.497 10 Mo Inne 0.444 0.356 Sider n' Www 0.397 10 0.231 0.319 0.286 Viver 0.286 0.257 *** Viac 0.208 0.187 0.168 0.152 0.112 0.1020.092 0.137 0.124 0.092 0.083 0.124 W10 VMI WWW. 13 0.076 0.601 0.069 mo sem 0.530 0.469 0.415 0.326 0.368 Side 0.290 0.258 0.204 0.229 Unte 0.182 Xoco a 0.145 0.130 0.116 nen 0.163 Si 0.075 0.104 0.093 0.084 0.055 WWW ace 0.068 0.061 0.577 0.505 au 14 0.442 0.388 0.299 wer 0.340 0.263 0.232 0.205 0.181 Www 0.160 00 0.141 0.125 0.111 0.099 0.088 an 0.078 Wide 0.069 0.044 00 15 200 0.555 0.481 0.062 0.055 0.049 10 au W . 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 ace 0.123 Ver 2009 100 0.140 0.108 0.095 0.084 0.074 0.065 0.057 200 we had 0.051 0.045 0.040 0.035 200 16 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 ex 0.163 0.141 2017 2016 new 0.123 0.107 0.093 0.081 -- 26 24 0.047 0.042 0.036 0.032 0.071 0.062 0.054 17 0.513 0.436 0.371 0.028 oc se sa 0.198 0.170 0.317 0.270 0.231 0.146 0.125 0.108 0.093 0.080 0.069 04 020 0940 0.060 0.052 0.045 tex 0.039 0.034 0.030 0.026 250 18 0.023 mu 0.494 0.416 0.350 0.296 0.250 120 tu 0.180 0.153 0.212 was nami noen nasi 0.130 0.111 0,095 0.081 20 0.059 worlar w 0.069 0.051 0.044 10 200 0.038 0.032 0.028 0.024 0.024 0.021 0.018 029 19 0.475 200 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 003 0.070 0.083 0.060 0.051 000 w a ta 0.043 0.037 000 0.037 0.031 20 SC 299 ton 0.027 0.023 0.020 0.017 20 asa 0.014 0.456 0.377 0.258 100 000 0.377 0.312 124 0.215 0.178 0.149 0.124 0.104 0.087 0061 0.073 00510 0.061 0027 2021 01 0.019 0.016 0.014 490 0.051 0.043 0.037 0.031 | 250 0904 29 0.026 0.022 21 100 101 0.439 0.359 0.294 0 242 0.199 11 0.164 125 0.012 00020077 0.112 0.135 0 000 0021 anoc 0053 0.093 0.077 0.053 0.044 0.037 0018 0.026 0.022 05 0.064 0.031 0.026 000 0409 0012 000 0.015 0.013 22 0347 10 2780226 0.018 184 150 12 101 09200 0.013 0.011 | 0.009 0.123 0.226 00060 0422 0.342 0.278 0.184 0.150 0.101 0046 028 022 010 0.056 0.083 0.068 0.046 0.038 0.032 0.026 0.022 0.022 0.018 0015 0000000007 0.015 0.011 | 0.0090.007 0.013 23 (406 0.406 0.326 0.262 0.211 0170 0138 0.170 0.138 012 0.091 0033 0027 0.040 0.112 0022 0.027 0.033 0.018 0.0022 0.015 0.012 097 0.006 0.010 0.009 0.00 0.007 0.006 24 0.390 0.310 0.310 0 247 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 003 0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.010 0.008 0.007 0.006 0.005 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 26 0.361 0.281 0.220 0.172 0.220 0.172 0.135 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.009 0.007 0.007 0.006 0.005 0.004 0.003 27 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.002 28 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 | 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 29 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 | 0.002 0.001 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0074 0.060 0.049 EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1/(1-(1/(1+r)^n)) Periods 1 2 3 4 - 5 6 7 8 9 10 11 12 1 13 14 14 15 16 12 17 10 18 19 19 20 20 21 21 22 22 23 24 25 26 27 28 29 30 40 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23 % 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.826 0.820 0.813 0.806 0.800 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1,690 1.668 1.647 1.626 1,605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1.457 1.440 2.775 2.723 2,673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.1016 2.042 2.074 2.011 1.981 3.630 1.952 3.546 med 3,465 no 3.312 3.387 3.240 3,170 3.102 3.037 2.974 2.914 2.855 2.798 an 08 2.743 2.639 40 2.690 2.589 on 2.540 baca 2.494 2.448 2.404 2.362 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 an 3.605 3.517 3.433 3.352 an 3.274 e 00 06 2.991 3.199 and 3.127 *** cos 120 COR 2.926 3.058 2.803 2.864 ace 10 2.689 5.242 2.745 5.076 4.917 4.623 4.486 and 4.767 aco 20 4.231 on 4.355 4.111 3.998 3.889 3.784 4. 3.685 3.589 3.498 00 . Econ 400 02 oca 1 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 ra 5.033 4.868 4.712 200 4.564 2008 4.423 4.288 4.160 4.039 cod 3.922 an 3.706 3.812 *** *** 3.605 3.508 2 3.416 3.327 3.242 3.161 6.733 6.463 6.210 nam 5.971 5.747 5.535 5.335 5.146 4.968 4.639 4.799 4.487 14 4.344 word 4.207 4.078 3.954 20 3.837 3.726 200 3,421 3.619 3.518 7.435 3.329 7.108 6.802 6.515 6.247 5.995 112 5.759 5.537 5.328 200 5.132 100 4.946 4.772 ce nocna 4.607 4.451 4.303 4.163 4.031 24 3.786 3.673 3.905 po 8.111 7.722 3.566 3.463 7.360 7.024 6.710 6.418 406 6.145 ana 5.889 5,650 14 5.426 5.216 5.019 4.833 4.659 1290 4.339 4.192 2900 4.494 2014 4,054 40 3.923 3.799 3.682 8.306 8.760 3.571 ce 7.887 7.499 7.139 2010 6.805 6.495 6.207 100 5.938 5.687 5.453 5.234 ce 7100 . 5.029 4.836 200 1400 ca 200 4.327 4.177 4.656 Trac 4.486 4.035 3.902 3.776 3.656 9.385 8.863 8.384 ecco 7.943 7.536 7.161 6.492 6.194 6.814 5.918 5.660 5.421 5.197 4.988 100 od 2 20 4.793 4.611 DOC an 4.439 02 4.278 4.127 3.985 3.851 9.986 3.725 9.394 co 8.853 675 8.358 7.904 7.487 7.103 6.750 6.424 Tan 6.122 5.842 5.583 5.342 5.118 200 4.910 4.715 4.533 4.362 4.203 man 270 and 4.053 os 10.563 9.899 3.912 3.780 29 9.295 8.745 8.244 7.786 7.367 6.982 6.628 mu 6.002 6.302 mw mei 5.724 5.468 5.229 5.008 meci 2012 4.802 4.611 4.432 4.265 2 4.108 3.962 CA 11.118 10.380 9.712 3.824 9.108 8.559 8,061 7.606 7.191 6.811 6.462 6.142 ut hon Tad 5.847 5.575 5.324 5.092 ca 022 4.675 4.876 20 4.489 4.315 4.153 4.001 11.652 10.838 10.106 9.447 3.859 ca 8.851 2220 8.313 7.824 CE 7.379 6.974 6.604 6.265 5.954 and 5.668 5.405 si sac 4.730 chanc 400 5.1624.938 ca 200 mas 4.536 4.357 4.189 en 4.033 3.887 12.166 | 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.1206.729 6.373 20 6.047 5.749 5.475 Tau 4.990 5.222 ca 2010 4.775 4.576 4.391 100 4.219 4.059 20 12.659 11.690 10.828 10.059 9.372 8.756 3.910 00 ou 7.702 8.201 7.250 6.840 6.467 6.128 5.818 5.534 50 co 5.273 2240 5.033 EN 1000 4.812 4.608 2010 4.419 4.243 4.080 2000 3.928 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 con Coco 6.938 6.550 6.198 5.877 5.584 5.316 hace 4.843 4.635 200 5.070 190 2008 4.442 4.263 09 TACO 13.590 12.462 11.470 10.5949.818 wood 4.097 and 3.942 9.129 7.469 7.025 8.514 7.963 6.623 ca 6.259 102 11 5.929 5.628 5.353 5.101 ACES 4.870 4.657 ACO 20 12000 1200113610026 200 4.460 4.279 14.029 12.821 11.764 10.836 10.017 | 9.292 ca ca TECA 4.110 3.954 100 7.562 8.075 7.102 ECCE 8.049 6.687 20 49 6.312 4001 5.127 5.973 5.665 5.384 4.891 121163 ACRE 22 4.675 1209 4.476 121 2062 24 4.292 14.451 13.163 12.042 11.061 10.201 | 9.442 CAE 120 720 7.645 220 4.121 3.963 20 CO 8.7728.176 7.170 6.743 6.359 5.600 410 5.696 5.410 110 6.011 5.149 2.000 4.909 600 4.690 200 120 00 4.488 4.302 14.857 13.489 12.303 11.272 10.371 9.580 0902 310 0.265 8.883 8.266 7220 7.718 6700 7.230 4.130 3.970 6 200 6.792 ad 6.399 512 6.044 5167 5.723 5.167 5.432 4.925 4.703 4 21 1702 4200 129 4.499 2076 4.311 7202 15.247 13.799 12.550 11.469 10.529 9.707 4.137 | 3.976 8.985 & 349 8.348 7.784 7282 7.283 6835 6.835 6424 6.434 6072 6.073 5746 3.746 SASI 5.451 5.182 1024 4.937 4.713 4713 210 4 507 4.507 4.318 142 4.143 3.981 15.622 14.094 12.783 11.654 10.675 | 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 4040 5.195 4.948 4.721 4.514 4.323 4.147 3.985 15.983 14.375 13.003 11.826 10.810 | 9.929 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7.441 6.961 | 6.534 6.534 6.152 6.152 5.810 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 | 3.992 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.983 6.551 6.166 5.820 5.510 5.2294.975 4.743 4.531 4.337 4.159 3.994 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.534 4.339 4.160 3.995 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 5