Big Rock Brewery currently rents a bottling machine for

$54,000

per year, including all maintenance expenses. The company 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

$21,000

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

$14,000

per year. Also,

$38,000

will be spent upfront in 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 are subject to a CCA rate of

45%

and there will be a negligible salvage value in ten year's time (the end of each machine's life). The marginal corporate tax rate is

40%.

Should Big Rock Brewery continue to rent, purchase its current machine, or purchase the advanced machine?

The NPV (rent the machine) is

$enter your response here.

(Round to the nearest dollar.)

Part 2

The NPV (purchase the current machine) is

$enter your response here.

(Round to the nearest dollar.)

Part 3

The NPV (purchase the advanced machine) is

$enter your response here.

(Round to the nearest dollar.)

Part 4

Which of the following is the best choice?

a. purchase the advanced tickets

b. rent the current machine

c. purchase the current machine