Question

In: Finance

​Beryl's Iced Tea currently rents a bottling machine for $ 53,000 per​ year, including all maintenance...

​Beryl's Iced Tea currently rents a bottling machine for $ 53,000 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 comma 000. This machine will require $ 24,000 per year in ongoing maintenance expenses. B. Purchase a​ new, more advanced machine for $ 260,000. 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 upfront training 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 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.​ (Note: the NPV will be​ negative, and represents the PV of the costs of the machine in each​ case.)

Question: The NPV of option B is $

Solutions

Expert Solution


Related Solutions

Beryl's Iced Tea currently rents a bottling machine for $ 53,000 per​ year, including all maintenance...
Beryl's Iced Tea currently rents a bottling machine for $ 53,000 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 $ 21,000 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...
​Beryl's Iced Tea currently rents a bottling machine for $ 53,000 per​ year, including all maintenance...
​Beryl's Iced Tea currently rents a bottling machine for $ 53,000 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 $ 23,000 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...
​Beryl's Iced Tea currently rents a bottling machine for $53,000 per​ year, including all maintenance expenses....
​Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $265,000. This machine will requires $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year.​ Also, 35,000...
Beryl's Iced Tea currently rents a bottling machine for $53,000 per year, including all maintenance expenses....
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $265,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $40,000...
Beryl's Iced Tea currently rents a bottling machine for $53,000 per​ year, including all maintenance expenses....
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $24,000 per year in ongoing maintenance expenses. b. Purchase a​ new, more advanced machine for $265,000. This machine will require $20,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year.​ Also, $35,000...
​Beryl's Iced Tea currently rents a bottling machine for $53,000 per​ year, including all maintenance expenses....
​Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $260,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $15,000 per year.​ Also, $36,000...
​Beryl's Iced Tea currently rents a bottling machine for $ 51,000 per​ year, including all maintenance...
​Beryl's Iced Tea currently rents a bottling machine for $ 51,000 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 $ 20,000 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...
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 $ 51,000 per​ year, including all maintenance...
​Beryl's Iced Tea currently rents a bottling machine for $ 51,000 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 $ 23,00 per year in ongoing maintenance expenses. b. Purchase a​ new, more advanced machine for $ 265,000. This machine will require $ 18,000 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...
​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 $ 150,000. This machine will require $ 24,000 per year in ongoing maintenance expenses. b. Purchase a​ new, more advanced machine for $ 250,000. This machine will require $ 19,000 per year in ongoing maintenance expenses and will lower bottling costs by...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT