Question
In: Finance
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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 $165,000. This machine will require $24,000 per year in ongoing maintenance expenses. Purchase a new, more advanced machine for $250,000. This machine will require 18,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $36,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-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 machineRent the current machine.
B. Purchase the advanced machinePurchase the advanced machine.
C. Purchase the current machinePurchase the current machine.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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 $16,000 per year in ongoing maintenance
expenses and will lower bottling costs by $13,000 per year. Also,
$35,000...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per? year, including all maintenance expenses....
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
$165,000.
This machine will require
$22,000
per year in ongoing maintenance expenses.
B. Purchase a? new, more advanced machine for
$260,000.
This machine will require
$20,000
per year in ongoing maintenance expenses and will lower bottling
costs by
$12,000
per year.? Also,
$39,000...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per? year, including all maintenance expenses....
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 $21,000 per year in ongoing
maintenance expenses.
b. Purchase a? new, more advanced machine for
$250,000.This machine will require $17,000 per year in ongoing
maintenance expenses and will lower bottling costs by $13,000 per
year. ?
Also, $35,000...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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$255,000. This machine will require $20,000
per year in ongoing maintenance expenses and will lower bottling
costs by $15,000 per year. Also, $37,000 will...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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 $160,000.
This machine will require $23,000 per year in ongoing maintenance
expenses.
B. Purchase a new, more advanced machine for $260,000. This
machine will require $18,000 per year in ongoing maintenance
expenses and will lower bottling costs by $13,000 per year. Also,
$36,000...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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 $265,000. This
machine will require $15,000 per year in ongoing maintenance
expenses and will lower bottling costs by $11,000 per year.
Also,$39,000 will...
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses....
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 $155,000.
This machine will require $22,000 per year in ongoing maintenance
expenses.
B. Purchase a new, more advanced machine for $260,000. This
machine will require $17,000 per year in ongoing maintenance
expenses and will lower bottling costs by $15,000 per year. Also,
$39,000...
Beryl's Iced Tea currently rents a bottling machine for $ 54,000 per year, including all maintenance...
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 $ 160,000.
This machine will require $ 21,000 per year in ongoing maintenance
expenses.
B. Purchase a new, more advanced machine for $ 260,000. This
machine will require $ 15,000 per year in ongoing maintenance
expenses and will lower bottling costs by...
Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses....
Beryl's Iced Tea currently rents a bottling machine for $50,000
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 $165,000. This
machine will require $25,000 per year in ongoing maintenance
expenses.
b.
Purchase a new, more advanced machine for $250,000. This machine
will require $18,000 per year in ongoing maintenance expenses and
will lower bottling costs by $12,000 per year. Also, $38,000...
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