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 $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $10.000 per year. Also, $35.000 will be spent upfront in training the new operators of the machine. 'Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and botling 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 10-year life with a negligible salvage value. The marginal corporate tax rate is 35%. Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? Discount rate Tax rate Useful life (years) 8% 35% Year 0 Year 8 Year 1 $50,000 Rent Machine Rent FCF (rent) NPV Year 2 $50,000 Year 3 $50,000 Year 4 $50,000 Year 5 $50,000 Year 6 $50,000 Year 7 -$50,000 Year 9 -$50,000 $50,000 Year 10 $50.000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 -$20,000 $20,000 $20,000 -$20,000 Purchase Current Machine Maintenance Depreciation Capital Expenditures FCF (purchase current) NPV -$150,000 -$15,000 $10,000 $15,000 $10,000 $15,000 $10,000 $15,000 $10,000 $15,000 $10,000 $35.000 $15,000 $10,000 -$15,000 $10,000 -$15,000 $10,000 -$15,000 $10,000 -$15,000 $10,000 Purchase Advanced Machine Maintenance Other Costs Depreciation Capital Expenditures FCF (purchase advanced) NPV $250,000 Beryl's Iced Tea should Requirements 1. Start Excel - completed. 2. In cell E15, by using cell references, calculate the free cash flow for year 1 in case of renting the machine (1 pt.). 3. To calculate the free cash flows for years 2 through 10 in case of renting the machine, copy cell E15 and paste it onto cells F15:N15 (1 pt.). 4. In cell D16, by using cell references and the function NPV, calculate the net present value of renting the machine (1 pt.). 5. In cell E20, by using cell references, calculate the depreciation of the current machine for year 1 (1 pt.). 6. To calculate the depreciation of the current machine for years 2 through 7, copy cell E20 and paste it onto cells F20:K20 (1 pt.). 7. In cell D22, by using a cell reference, calculate the free cash flow for year ( in case of purchasing the current machine (1 pt.). 8. In cell E22, by using cell references, calculate the free cash flow for year 1 in case of purchasing the current machine (1 pt.). 9. To calculate the free cash flows for years 2 through 10 in case of purchasing the current machine, copy cell E22 and paste it onto cells F22:N22 (1 pt.) 10. In cell D23, by using cell references and the function NPV, calculate the net present value of purchasing the current machine (1 pt.). 11. In cell E28, by using cell references, calculate the depreciation of the advanced machine for year 1 (1 pt.). To calculate the depreciation of the advanced machine for years 2 through 1, copy cell E28 and paste it onto cells F28:K28 (1 pt.). In cell D30, by using cell references, calculate the free cash flow for year 0 in case of purchasing the advanced machine (1 pt.). 14. To calculate the free cash flows for years 2 through 10 in case of purchasing the advanced machine, copy cell D30 and paste it onto cells E30:N30 (1 pt.). 15. In cell D31, by using cell references and the function NPV, calculate the net present value of purchasing the advanced machine (1 pt.). 16. In cells D33-E33, select from the drop down whether Beryl's Iced Tea should continue to rent, purchase its current machine, or purchase the advanced machine (1 pt.). 17. Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed. 12. 13