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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
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 $ each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole:okAnnual cost of servicing, taxes, and licensingRepairs, year Repairs, year Repairs, year $At the end of three years. the fleet could be sold for onehalf of the original purchaseprice.Lease Alternative. The company can lease the cars under a threeyear lease contract.The lease cost would be $ per year with the first payment due at the end of year 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 $ 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 Click here to view Exhibit and Exhibit to determine the appropriate discount factors using tables Use the total cost approach to cletermine the present valite of the cash flows associated with each alternative Negative amounts 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 factors to decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amounts.YearsPresentAmount ofValue ofCash Flows Factor Cash Flows::Click to select ~ $Click to select veBookClick to select v Click to selectClick to select v Click to selectItemPurchase of fleet:Initial payment carsAnnual cost of servicing taxes and licensingRepairs Year Repairs Year Repairs Year Resale value of the fleetPresent value of cash outflowsLease of cars:Initial depositLease paymentsReturn of depositPresent value of cash outflowsClick to select v $ Click to select v Click to select vWhich alternative should the company accept based on the calculations in part
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 $ each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole:okAnnual cost of servicing, taxes, and licensingRepairs, year Repairs, year Repairs, year $At the end of three years. the fleet could be sold for onehalf of the original purchaseprice.Lease Alternative. The company can lease the cars under a threeyear lease contract.The lease cost would be $ per year with the first payment due at the end of year 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 $ 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 Click here to view Exhibit and Exhibit to determine the appropriate discount factors using tables Use the total cost approach to cletermine the present valite of the cash flows associated with each alternative Negative amounts 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 factors to decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amounts.YearsPresentAmount ofValue ofCash Flows Factor Cash Flows::Click to select ~ $Click to select veBookClick to select v Click to selectClick to select v Click to selectItemPurchase of fleet:Initial payment carsAnnual cost of servicing taxes and licensingRepairs Year Repairs Year Repairs Year Resale value of the fleetPresent value of cash outflowsLease of cars:Initial depositLease paymentsReturn of depositPresent value of cash outflowsClick to select v $ Click to select v Click to select vWhich alternative should the company accept based on the calculations in part
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