View previous attempt Check my won 1 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: 10 points References 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 $15,000 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 $3,100 $1,000 $3,500 $ 5,500 Repairs, third year 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 $50,000 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 $10,500 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 19%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. 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? C EXHIBIT 14B-1 ezt prod.mheducation.com/Media/Connect Production/bne/accounting/gamin 1 Present Value of $1; Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 1 0.962 0.952 0943 0.935 0.926 0.917 0.909 0.901 0893 0.885 0.877 0.870 0.862 0.855 0.847 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0812 0,797 0.783 0.769 0.756 0.743 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0,641 4 0.855 0.823 0.792 0.763 0.735 5 0.822 0,784 0.747 0.713 0.681 0.708 0.650 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.609 0.624 0.534 0.516 21% 23% 25 20% 24% 0.826 0.820 0.813 0.806 0.80 0.840 0.833 0.683 0.672 0.661 0.650 0.6 0.731 0.718 0.706 0.694 0.564 0.551 0.537 0.524 0.593 0.579 0.5 0.467 0.482 0.451 0.499 22% 0.437 0423 04 0.621 0.593 0.567 0.543 0.519 0497 0.476 0456 0.437 0419 0.402 0386 0.370 0.355 0.341 0.32 6 0.790 0.746 0.705 0.666 0.630 0.596 0.535 0.507 0.564 0,480 0456 0432 0.410 0390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.20 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0434 0.404 0.376 0.400 0.376 0.351 0.327 0.305 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0235 0.222 0.2 0285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0:1 9 0.703 0.645 0.592 10 0.676 0.614 0.558 0.544 0.500 0.508 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.1 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.10 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.0 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0124 0.112 0.102 0.092 0.083 0.076 0.00 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.0 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.332 0.205 0.181 0.160 15 0.555 0.481 0417 0.362 16 0.534 0.458 0.394 0.339 0.292 17 0.513 0.436 0371 0.317 0.270 0.315 0.275 0.239 0.252 0.231 0.198 0.209 0.183 0.160 0.140 0.218 0.188 0.141 0.123 18 0.494 0.250 0212 0.180 19 0.232 0.194 0.164 20 0.215 0.178 21 22 23 24 21 0.111 0.141 0.084 0.095 0.123 0.108 0.062 0093 0.071 0,081 0.163 0.107 0.125 0.108 0.170 0.146 0.093 0.080 0.069 0.060 0.052 0.045 0.081 0.069 0.059 0.051 0.130 0.111 0.095 0.044 0.038 0.032 0.028 0024 0.021 0.0 0416 0.350 0.153 0.296 0.070 0.060 0.037 0.051 0.116 0.043 0.027 0.020 0.023 0.098 0.083 0.031 0.396 0.138 0475 0.331 0277 0.104 0.087 0.051 0.073 0.043 0.037 0.061 0.026 0.149 0.031 0.022 0.124 0.019 0.016 0.456 0.377 0312 0.258 0.093 0.053 0.077 0.064 0.044 0.017 0.031 0.026 0135 0.112 0.022 0.018 0.015 0.013 0.011 0.359 0.294 0.242 0.199 0.164 0.439 0.083 0.068 0056 0.016 0.035 0.032 0.026 0.022 0.018 0.015 0226 0.184 0.150 0.123 0.101 0.013 0.011 0.009 0.00 0.422 0.342 0.278 0.060 0.049 0.074 0.091 0.018 0.040 0.015 0.012 0.010 0.009 0.033 0.027 0.022 0211 0.406 0.326 0.170 0.138 0.262 0.112 0053 0.043 0.082 0015 0.066 0.025 0.023 0.019 0.015 0.013 0.010 0.007 0.008 0.390 0.310 0247 0.197 0.158 0.126 0.102 Bows 20 WTXOOXXZ BOZLous Locas Loose Loots Loom Loor Loom Inax arabo Loots Bootcore 0.000 oond Loon 0.125 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.0 0.065 0.057 0.074 0.051 0.040 0.045 0.0 0.054 0.047 0.042 0.036 0.032 0.0 0.039 0.034 0.030 0.026 0.0 0.017 0.014 0.0 0.0 0.00 0.007 0.00 0.006 00 EXHIBIT 14B-2 Present Value of an Annuity of $1 in Arrears; Periods 4% 5% T 0.962 0.952 6% 7% 0.943 0.935 8% 9% 10% 11% 12% 13% 0.926 0.917 0.909 0.901 2 1.886 1.859 1.833 1.808 1.783 1.759 1.736 3 2.775 2.723 2.673 2.624 2.577 4 5 6 7 6.002 8 6.733 9 7.435 7.108 10 8.111 7.722 11 8.760 8.306 12 9.385 3.630 3.546 3.465 3.387 3.312 4.329 4.452 4.212 4.100 3.993 5.242 5.076 4.917 4.767 4.623 5.582 5.389 5.206 5.786 5.747 6.463 6.210 5.971 6.515 6.247 6.502 7.360 7.024 6.710 7.887 7.499 7.139 8.863 8.384 3.890 4.039 4344 6.805 6.495 5.687 7.943 7.536 7.161 6.814 6.492 6.194 13 9.986 9.394 8.853 8.358 7.904 7.487 7.103 14) 10.563 9.899 9.295 8.745 8.244 7,786 7.367 6.982 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 16 11.652 10.838 10.106 9.447 8.851 8.313 17 12.166 11.274 10.477 9.763 9.122 8.544 7.824 7.379 8.022 6.729 6.373 6.047 18 12.659 11.690 10.828 10.059 9.372 8.756 6.840 6.467 6.128 19 13.134 12.085 11.158 10.336 9.604 8.950 6.198 20 21 22 13.590 12.462 11.470 10.594 9.818 14.029 12.821 11.764 10.836 10.017 9.292 14.451 13.163 12 042 11.061 10.201 9.442 9.129 23 14.857 13.489 12.303 24 15.247 13 799 12 350 4.833 5.216 5.019 5.234 5.029 4.836 4.656 5.453 4.327 4.177 4.035 4.988 4.793 5.918 5.197 5.660 5.421 4.611 4.439 4.278 4.127 4.362 4.203 4.910 4.715 4.533 5.583 5.342 5.118 6.750 6.424 6.122 5.842 4.802 4.432 4.265 5.229 4.611 5.008 6.628 6.302 6.002 5.724 5.468 5.847 5.324 5.092 6.462 6.142 6.811 5575 4.489 4.315 6.265 5.954 5.668 5.405 5.162 6974 6.604 7.549 7.120 5.749 5.475 5.222 5.818 5.534 5273 5.033 4.812 8.201 7.702 7.250 7.366 6.938 6.550 5.877 5.584 5.316 5.070 8.365 7.839 4.843 6.623 8.514 7.963 7.469 7.025 5.628 6.259 5929 5.353 5.101 4.870 4.657 4.460 8.075 6.687 7.562 7.102 6312 5.973 5.665 8.649 5.384 5.127 4.891 4.675 4.476 4.292 4.121 39 5.696 8.176 7.645 7,170 6.743 6359 6.011 5.410 5.149 4.909 4.690 4.488 4.302 4.130 39 8.772 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 39 11.272 10.371 9.580 8.883 8.266 7.718 7.2.30 6.792 6.399 4917 4711 4507 14 31s 4143 10 11 469 10 329970789858348 7.784 7.28X68356414 6074 | 746 15451 $180 25 22% 24% 14% 1796 15% 16% 0.806 0.8 0.847 0.840 0.826 0.820 0.813 0.833 0.893 0.885 0877 0.870 0.862 0.855 1.509 1.492 1.474 1:457 14 1.585 1.566 1.547 1.528 1.713 1.690 1.668 1.647 1.626 1.605 2011 2.074 2.042 1.981 1.9 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.540 2.494 2.448 2.404 2.3 2.743 2.690 2.639 2.589 3.240 3.170 3.102 3.037 2.974 2914 2.855 2.798 2.745 2.803 2.6 3.199 2.926 2.864 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.127 3.020 29 4.486 4.355 4.2 4.111 3.998 3.889 3,784 3.685 3.589 3.245 3.498 4.712 4.564 4.423 4.288 4.160 5.033 4.868 3.922 4.968 4.799 4.487 5.535 5.335 4.639 5.146 4.946 4.772 4.607 5.995 5.759 5.537 5.328 5.132 6418 6.145 5.889 5.650 5.426 6.207 5.938 18% 19% 20% 21% 23% 3.058 2.991 3.410 3.326 3.167 3.092 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.1 4.207 4.078 3.837 3.954 3,726 3.619 3:518 3.421 33 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.4 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 3.5 4.486 3.902 3.776 3.6 3.985 3.851 3.7 4.053 3.912 3.7 4.108 3.962 3.8 4.876 4.675 4.938 4.730 4.153 4.001 38 4.536 4.357 4.189 4.033 3.8 4.990 4.775 4.576 4.391 4.219 4.059 3.9 4.608 4419 4.243 4.080 3.9 4.635 4.442 4.263 4.097 39 4.279 4.110 3.9