The Wrongway 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 as follows:

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 $25,700 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole:

The Wrongway 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 eet of cars is three years old and will be sold very shortly. To provide a replacement eet, the company is considering two alternatives as follows: 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 $25,700 each. If this alternative is accepted, the following costs will be incurred on the eet as a whole: Annual cost of servicing, taxes, and licensing $7,700 Repairs, year 1 2,190 Repairs, year 2 5,600 Repairs, year 3 7,500 At the end of three years, the eet 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 $83,250 per year (with the rst 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. Wrongway would be required to make a $10,750 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. Wrongway's required rate of return is 18%. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: (Ignore income taxes.) 1. Use the total cost approach to determine the present value of the cash flows associated with each alternative. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amounts.) Purchase of eet $ 362,393 Lease of cars $ 185,215 EXHIBIT 10 - 7 Present Value of $7 P = In ( 1 + + ) " Thi` `De 0. 952\\ 0. 9+3/ 0. 926\\ 0. 909 0 . 893\\ 0 . 877\\ 0 . 56 2\\ 0 . 8 +7\\ 0.833\\ 0. 820 0 . 506\\ 0. 79+ 0 . 781\\ 0. 769 0.714 0. 925 0. 907\\ 0. 890 0.857\\ 0. 826\\ 0 . 797\\ 0. 769 0 . 7 + 3 { 0. 718 0.69+| 0. 072\\ 0. 650 0. 630 0. 610 0.592\\ 0.510 0.859 0. 50 +\\ 0. 840 0.79+| - 0.751 0. 712 0. 675 0.6+1 0. 609 0.579 0.551 0 0.52 +| 0.500 0 . 7 77 0. 755 0. 30+ 0.855 { 0.823\\ 0. 792 0. 735 0.653 0.636 0.592 0.552 0.516 01. 752 0. 751 0. 423 0. 397\\ 0 . 373 0. 350 0.260 0. 822\\ 0. 78 +| 0 . 7 + 7 0.681 0.621 0.567 0.519 0. 7 76 0. 7 37 0.102 0.370 0.3+ 1 0.315 0. 291\\ 0. 269\\ 0 . 186 0. 790 0 . 7 + 6\\ 0. 705 { 0. 630 0. 50+| 0 . 507\\ 0 . 756\\ 0 . 4 10 0. 370 0:335 { 0 . 303\\ 0 . 275\\ 0 . 250 0 . 227 0 . 207 0 . 133 0. 760 0 0 . 711 0.065\\ 0. 583\\ 3 0.513 0. 75 2 0 0 . 700| 0. 35+ $ \\0. 31 + 0.279 { 0 . 2+9 0 0 . 272 0. 195 0.175 0. 159\\ 0 . 731 0. 677\\ \\0 . 627 0.5+0 0 . 767\\ \\0. 10 + 0.351 0. 305 0. 260 0. 233 0. 20 1 0. 179 0. 157 0. 139 0. 123\\ 0.065 0. 703 0. 645 0.592 0.500 0. 4 2 + 0.361 0.305 0. 263 0. 275 0. 19+ 0. 167 0. 1 1 1 0. 125 0. 105 0.09+\\ 0.045 0. 676 0. 01 + 0.558 0. 763 0.356\\ 0 . 322\\ 0 . 270 0 . 727 0 _ 191 0.162 0. 137 0.1 16 0.099\\ 0 . 085\\ 0.073 0.035 0. 650 0 . 585\\ 0 . 527 0 . 7 29\\ 0 . 350 0 . 237\\ 0 . 195 0 . 162 0. 135 0 . 1 12\\ 0. 079\\ 0. 060 0. 050 0.025 0. 625 0. 557\\ 0 . 197 0. 397\\ 9 0 . 319 0 . 257\\ 0. 208 0 . 165 0 . 137 0.1 12 0.09 2\\ 0. 076\\ 0. 06 =\\ 0. 052\\ 0. 04 3\\ 0. 01S 13 0 . 601\\ 0.530 0. 769 0.365 0. 290 0. 239 0. 152 0. 145 0. 1 16 0.093 0. 075 0 0 . 061\\ 0 . 050 0 . 0 40 0 . 033 0.013 It 0. 577 0.505 0. 7 2 0. 310 0. 263 0.205 0 . 160 0 . 125 0. 099 0. 075 0.05 2\\ 0. 04 9 0. 039\\ 0. 032 0. 025 0. 009 15 0.555 0.451 0. 417 0. 315 0. 239 0. 153 0. 1 10 0. 105 0. 05 + 0.065 0.051\\ 0 . 0 40 0 0. 031\\ 0. 025\\ 0. 020 0.53+ 0 . 75% 0 . 292\\ 0. 215 0 . 163 0 . 123 { 0: 05 + 0 . 04 2 0 . 032\\ 0. 025\\ 0. 019 0. 015 \\120 0 0.005 0. 513 { 0. 736 0.371 0.270 0. 195 0. 1 16 0. 105 0.050\\ 0. 060 { \\0: 0+5\\ 0. 03 +\\ 0. 020 0. 020 0. 015\\ 0 . 012 0.003 IS 0. 19 + 0. +16 0.350 0.250 0. 150 0. 130 0.095 0.069 0. 051 0:035 0.028\\ 0. 021 0. 016\\ \\0. 012\\ 0. 009 0.00 2 19 0. 175 0.396 0.331 0.232 0. 16+ 0. 1 16 0. 053 0.050 0. 013 0.031 0.023\\ 0. 017\\ 0. 012\\ 0.009\\ 0. 007 0. 00 ? \\150 0 0. 377\\ 0. 750 0 \\0 . 312 0.215 0.1 + 9 0 . 10 + 0. 073\\ 0 . 037 0:026 { 0.019\\ 0. 01 +\\ 0. 010 0. 007 0. 005 0. 001 0. 439 0 . 359 0. 29 + 0 . 199 0 . 135 0.093\\ 0 . 06 + 0 . 031\\ 0: 032 0. 015 0 . 011 0. 008 0. 006 0.00 + 0. 001 0. 7 32\\ 0 . 3 + 2 0. 278 0. 18 + 0 . 123 0.053\\ 0 . 038\\ \\950 0 \\0. 026\\ Q.DIS 0.013\\ 0.009\\ 0. DOG 0. 00 +| 0. 003\\ 0. 001 0. 406 0.320 0.202 0. 170 0.112 0. 07 + 0. 049\\ \\0 . 033\\ \\0 . 02 2\\ 0.015 0.010 0.007\\ 0. 0.05\\ 0. 003 0. 00? 0. 390 0.310 0. 21 7 0. 150 0. 102 0.056\\ 0 . 043 0 .028 0.019 0.013 0.005\\ 0. 00 +\\ 0. 0.03 \\900 0 D. DO ? 0 . 375 0. 295 0. 233 0. 1 4 6 0. 092{ 0. 059 0. 038\\ 0. 02 4 { \\0. 016 0.010 0.007\\ 0.005 100'0 0. 00 =\\ 0. 301 0 . 281\\ 0 . 720 0 . 135\\ 5 0. 08+ 0. 053 0 . 033\\ 0 . 021 0.01+ { 0.009 0. 00+ 0. 00 = 0. 00 = 0. 001 0. 3 +7\\ 0. 268\\ 0 . 207 0.125 0.076\\ 0 . 0 4 7\\ 0. 029\\ \\0.0IS 0. 011 0.007\\ 0. 0.05\\ 0. 003 \\100 0 0. 001 28 0. 333 0.255 0. 196 0.1 16 0. 069\\ \\0 . 04 2 0.026\\ \\0 . 016 0. 010 0.006 { 0.00 +\\ 0. 00 =\\ 0.00 =\\ 0. 001\\ 0. 001 29 0. 321 0. 2 +3 0. 165 0 . 107 0. 063\\ 0 . 037 0 0 . 02 2\\ 0 . 01 + 0. 008 0.005 0.003\\ 0. 00 ? 0. 001\\ 0. 001 30 0. 305 0 0 . 231 0.17 + 0.099 0.057\\ \\0 .012 0. 007 { 0.00 4 { 0.0.03\\ 100 0 0. 00 ? \\100 0 10 0. 205 0 . 1 4 2\\ 0. 04 6\\ 0 . 011\\ 0.005\\ 0. 0.03\\ 0. 001 0.001EXHIBIT 10 - 2 Present Value of an Annuity of $1 ( 1 + + ) * Dies {.DE` `DES 0. 9+3 0. 926\\ 0.909 0.593 0.577 0. 562 0.5+7 0.533 0.520 0.506 { 0.79+ 0.781\\ 0 . 769 0.714 1.859\\ 1.533 1.783 1.690\\ \\1.6 +7 1. 605\\ 1. 492\\ 1. 457\\ 1.392 1.224 2. 175 2.723 2. 402 2.322 2.246\\ 2.174 2.106 2.04 2\\ 1.951\\ 1.923 1.565 1.816 1.589 3.050 3.5+6 3.405 3.312 3.170 3.037\\ 2.91 + 2.795 2.690 2.589\\ 2. 49+| 2.320 2.241 2.166 1.879 + 330 3.993\\ 3.791\\ 3.605 3. +33 3.27 + 3.127\\ 2.745 2.635 2.532\\ 2.436 2.035 +. 111 3.559 3.685 3.195\\ 2.585 2.759 2.6+3 2.165 5.750 4. 565\\ 4.56+| 4 . 285 + .039\\ 3.605 3.416 3.083 2.937 \\2.263 6.133 5.335\\ 1. 965\\ 4 . 639 4 .3+4\\ 3.619\\ \\3.421\\ 3.2+1| 2.925\\ 2.331 7. 435 6.247 5.759\\ 5.328\\ 4 .9+6 4 . 607 4 .303\\ 10 3. 111 7. 72 2 6.710 6.145 5.650 5 5.216 + .833\\ 4 . 194\\ \\+ . 192 3.923 3.602 3.165 3.269 3.092\\ 2.414 7. 567 7.139 6.495\\ 5.938 5. 453 5.029 4.656\\ 4 .035 3.776 3.5+4 3.335 3.147 2. 435\\ 9.385 5.563 5.30+ 7.536\\ 6.81+| 5.660 5.197\\ 4 . 793\\ + +39 4 . 127 3.551 3.606\\ 3.387 3.190 2.456\\ 9.956 9.39+ 6.42+| 5.8+ 2 5.3+ 2\\ 4 .910 4 . 203\\ 3.912\\ 3.656\\ 3.223 2.468 It 10.503 9.899 3.2+ +| 6.625 6.002 5.465{ 4.011\\ 15 11.118 10.350 9.712 3.559 7.606 6.511 6.142 5.575 5.092\\ \\+ . 675 4 .315 + .001 3.726 3.183 3.265\\ 2.484 11.652 10.538\\ 10.106 3.851 7.324 6.97+| 6.265 5.669 5.162\\ 730 4.357 + . 033 3.751 3.503 3.283\\ 2.489 12.166 11.274 10. +77 8.022\\ 6.373 5.7+9\\ 4.775 4.391 4.059 3.771 3.515 3.295\\ 2.492 12.659 11.690 10.528 8. 201\\ 7.250 6.467 5.815\\ 5.273\\ 4 . 812\\ 3.786\\ 3.529 3.30+ 19 13.13+ 11.150 7.360 6.550 5.877 { 5.316\\ + . 097\\ 3.311\\ 2.496 20 13.590 12.462 11. 470 9.815 8.5141 7.469 6.623 5.929\\ 4. 460 +.110 3.508 3.5+6) 5+6 3.316 2.197 14.029 12.821/ 11.76+ 10.017\\ 8.6+9\\ 7.562 6.687 5.973 5.35+| 1 .591 + +76 + . 121 3.816 3.551 3.320 2.195\\ 14. 451 13.163\\ 12.04 2 10.201 7.6+5\\ 6.7+3 6.011 5.+10 4 .909 + +$8 4 . 130 3.822\\ 3.556 3.323\\ 2.195 14.857 13. 459 12.303 10.371 8.583\\ 7.715 6.792 6. 04+ 5.432 4 .925 4 . 137\\ 3.827\\ 3.559\\ 3.325 2.499 15.2+7/ 13.799 12.550 10.529\\ 8.985\\ 7.78+ 6.835 6.073\\ + . 143\\ 3.327\\ 2.499 25 14.094 12.783/ 10.675 9.077\\ 7.8+3\\ 6.873 6.097\\ 5.467\\ 1948 4 .514 4 . 147 3.83+ 3.56+| 3.329 2. 499 26 15.953\\ 14.375 13.003 10.810 9.161 7.896\\ 6.906 6.115 5.450 1956 4.520 4 . 151 3.837\\ 3.330 2.500 27 16.330 14. 6+3\\ 13.211 10.935\\ 9.237\\ 7.9+3\\ 6.935 6.136\\ 4 .525 4 . 15+ 3.839\\ 3.567\\ 3.331 2.500 28 16.663\\ 14.595 13. 406 11.051 9.307 6.961 6.152\\ 5.502 4 .970 4 .528\\ 3.8+0| 3.568 3.331 2.500 16.95+| 15.141 13.591\\ 11.150 9.370 6.953 6.166 5.510 4.975\\ 4 .531\\ + . 159 3.841\\ 3.569\\ 3.332\\ 30 17.292\\ 15.373 13.765 11.258 8.055 7.003 6.177 5.517\\ 4 .53+ + . 160 3.8+ 2 3.569 3 3.332\\ 2.500 19.793\\ 15.046\\ 11.925\\ 9.779 8.2+ 7.105 6.23+ 5.5+8 4.997 4.5++ + . 166 3.846 3.571 3.333{ 2.500