The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased it's cars from a dealer...

Problem 13-25 Net Present Value Analysis of a Lease or Buy Decision [LO13-2] 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 $17,000 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 s 3,000 Repairs, first year 1,500 Repairs, second year 4,000 Repairs, third year 6,000 ALthe end of three years, the feet could be sold for one-half ofthe original purchase price. Lease alternative: The company can lease the cars under three-year contract. The lease cost would provide all per first a lease of this lease year due the end of servicing and repairs, license the pay the taxes. at the of the y would be required to 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 13B-1 and Exhibit 13B-2. to determine the appropriate discount factor(s) using Required: 1. Use the total-cost approach to determine the present value of the cash flows associated with each alternative. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places) Purchase of cars Annual servicing costs