The Riteway Ad Agency provides cars for its sales staff. In the past, the company has...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648993a0c9b7_849664899396fda6.jpg)
Transcribed Image Text:
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 $29,000 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 Repairs, first year Repairs, second year Repairs, third year $ 4,500 $ 2,400 $ 4,900 $ 6,900 At the end of three years, the fleet 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 $64,000 per year (the first 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. Riteway would be required to make a $12,000 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. Riteway Ad Agency's required rate of return is 17%. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the net present value of the cash flows associated with the purchase alternative? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value 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 $29,000 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 Repairs, first year Repairs, second year Repairs, third year $ 4,500 $ 2,400 $ 4,900 $ 6,900 At the end of three years, the fleet 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 $64,000 per year (the first 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. Riteway would be required to make a $12,000 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. Riteway Ad Agency's required rate of return is 17%. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the net present value of the cash flows associated with the purchase alternative? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Four of Wands, LLC generated $255,000 in sales during January 2022. Of this amount, 25% was for cash. The remaining 75% of sales were made on account. The February 2022 sales on account were...
-
Cox Company recently purchased a machine by paying $10,000 cash and signing a six month, 10% note for $10,000. In addition to the purchase price, Cox incurred the following costs related to the...
-
In general, shopping online is supposed to be more convenient than going to stores. However, according to a recent Harris Interactive poll, 87% of people have experienced problems with an online...
-
What are some ideal ways for the board and staff to communicate with each other?
-
In August 2008, Mexican pesos were trading at $0.10 on the foreign exchange market. By November, they were down to $0.07, a decline of 30%. Explain the fall in the price of a peso using supply and...
-
David purchased 1 0 0 shares of stock at $ 2 0 using her 6 0 % margin account ( i . e . he can only borrow 4 0 % of the account value with a margin loan ) . His maintenance margin is 5 0 % . David...
-
In 2022, Keith rode in a vanpool to work. Keith's employer paid Keith $5,000 for Keith's participation in the vanpool. The vanpool was a qualified transportation fringe benefit provided by Keith's...
-
An investment of $9000 grows to $10,293.16 in 4 years. Find the annual rate of return for annual compounding. [Hint: Use P 1 + =J Submit Answer % mt with m 1 and solve for r (rounded to one decimal...
-
Business letters can be used to request information or action. Familiarize yourself with the organization of these direct request letters so that you can communicate your purpose and achieve a...
-
Last year your firm had revenue of $42.0 million, cost of goods sold (COGS) of $27.0 million, Selling, General, & Administration costs (SG&A) of $5.5 million, Account Receivables (AR) of $9.0...
-
The JEM Company has been in operation for over 40 years and has 20,000 shares of $100 par-value common stock authorized, of which 12,000 shares have been issued. THe market value of the stock...
-
Difference in cost reduction and cost pricing. Please explain in details with examples ?
-
Black Cloud Oil Company incurred the following costs during 2021: Began drilling an exploratory-type stratigraphic test well. Incurred $250,000 of IDC. Began drilling an exploratory-type...
-
A superior criticized a sales manager for selling high-revenue, low-profit items instead of lower-revenue but higher-profit items. The sales manager responded, My income is based on commissions that...
-
In monopolistic competition, firms use _________ names to gain some degree of control over price.
-
Firms in monopolistic competition produce products that are _________ from those produced by other firms in the industry.
-
Product differentiation is the accentuation of _________ product qualities to develop a product identity.
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App