Question

​Beryl's Iced Tea currently rents a bottling machine for $54,000 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 $150,000.This machine will require $22,000 per year in ongoing maintenance expenses.
B. Purchase a​ new, more advanced machine for $250,000. This machine will require $16,000per year in ongoing maintenance expenses and will lower bottling costs by $14,000per year.​ Also, $37,000 will be spent upfront 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 40% 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.​ (Note: the NPV will be​ negative, and represents the PV of the costs of the machine in each​ case.)

1. The NPV of renting the machine is ?

2. The NPV of option A?

3 The NPV of option B?

Answer 1