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Question: the riteway ad agency provides cars for its sales in...

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Pad 8:05 PM 85% The Riteway Ad Agency provides cars for its sales stat. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years ofuse. The companys present feet of cars is three years old and wilbe sold very shortly To provide replacement feet, the company is considering two altematives: Purchase alternative: The company can purchase the cars, as in the past, and sell the cars atter three years ofuse. Ten cars will be discounted price of $25,000 each. If this alternative is acc epted, the following costs will be incurred on eeded, which can be purchased at a the fleet as a Annual cost of servicing taxes, and licensing Repairs, first year 2,000 s 4500 Repairs, second year Repairs, third year At the end of three years, the feet 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 $60.000 per year (the first payment dueat the end of Year 10. As part of this lease cost the owner would provide all senvicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $10.000 security deposit at the beginning of the lease period which would be refunded when the cars were retumed to the owner atthe end of the lease contract Riteway Ad Agencys required rate of return is 19%. Click here to view Exhibit BB-1 and Exhibi 8B 2, to determine the appropriate discountfactor(s) using tables. Required: 1 Use the totalcost approach to determine the present value of the cash flows associated with each allemative (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.) Purchase Alternative: Purchase of cars Annual servicing costs Resale value of cars Total cash flows Discount factor Net present value Annua lease payments Refund of deposit Total cash flows Present value Net present value 2. Which alternative should the company accept? Purchase atemative Lease alternative
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