The Colgate Distributing Company has the choice of furnishing its sales representatives with a car or paying

Question:

The Colgate Distributing Company has the choice of furnishing its sales representatives with a car or paying a mileage allowance for the use of the representatives' own cars. If the company furnishes the car, it will pay all expenses connected with it, including gasoline, for business mileage. The estimates are as follows:
Cost of car: $15,000
Estimated life: 4 years
Depreciation method: Straight-line over 4 years (assuming no )
Expected sales value oj car at end of 4 years: $2, 500
Estimated annual operating costs:
Gasoline..........................$900
License and insurance...........600
Garage.............................300
Maintenance
Near 1.............................230
Year 2.............................350
Year 3.............................450
Year 4.............................600
If the sales representatives use their own cars, the company will reimburse diem at 35 cents per mile; the company estimates that each representative will drive 18,000 miles per year for business purposes. The company's is 10 percent, and its income tax rate is 40 percent.
Should the company buy cars for its sales representatives or pay them a mileage allowance? Use the NPV method in your calculation.
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