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In: Finance

​Beryl's Iced Tea currently rents a bottling machine for $55 000 per​ year, including all maintenance...

​Beryl's Iced Tea currently rents a bottling machine for $55 000 per​ year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options:

a. Purchase the machine it is currently renting for $155 000. This machine will require $25 000 per year in ongoing maintenance expenses.

b. Purchase a​ new, more advanced machine for $265 000. This machine will require $19 000 per year in ongoing maintenance expenses and will lower bottling costs by $12 000 per year.​ Also, $35 000 will be spent up front training the new operators of the machine.

Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each​ year, as is the rental of the machine. Assume also that the machines will be depreciated via the​ straight-line method over seven years and that they have a​ ten-year life with a negligible salvage value. The marginal corporate tax rate is 30%. Should​ Beryl's Iced Tea continue to​ rent, purchase its current​ machine, or purchase the advanced​ machine? To make this​ decision, calculate the NPV of the FCF associated with each alternative.

The NPV of renting the current machine is ​$ ................. ​(Round to the nearest​ dollar.)

The NPV of purchasing the current machine is $ ................. (Round to the nearest​ dollar.)

The NPV of purchasing the advanced machine is $ ................. ​(Round to the nearest​ dollar.)

Which of the following is the best​ choice? ​ (Select the best choice​ below.)

A. Rent the current machine.

B. Purchase the advanced machine.

C. Purchase the current machine.

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