Business at Bull Rider Micro Brewery is booming. Owner, Bennie "The Harp" Smith said that sales of beer have been rising steadily over the last 3 years. The company has possible investments that will help its business. Bennie can purchase a new fully integrated brew house information system that tracks the batch progress and also includes everything he needs to run the business including payroll, inventory tracking, purchasing, etc. He likes that he'll be able to use his phone to monitor an executive dashboard with drilldown capability that will help him run his business from anywhere, while he is out pushing for sales. This off the shelf software package costs $25, 000 with implementation and training costing $6, 000. Life of the software is 6 years with no market value. Labor savings resulting from its use is $8000/year in today's dollars. Inflation rate is expected at 3% a year. Use MACRS GDS 5 years. He could invest in a used brew house tank in order to expand output. The investment would be $33, 000 and this would expand the capacity resulting in an increase in revenue of 9000/year. Life of the tank is 6 years with a $3000 market value. Use MACRS GDS 5 years. Also needs to consider 2 options for labeling the bottles with a labeling machine. He will need to do one of these two options in order to keep up with the labeling that will be required. And for the last five years, Bull Rider has been using a machine that attaches labels to bottles. The machine was purchased for $3800 and is being depreciated using MACRS GDS with recovery period of 5 years. The machine can be sold now for $2000. With increased sales Bennie has to expand his labeling capability. He has two options to solve this problem. Option 1 is to buy a new machine from a company in Germany for 3602 Euros (price includes shipping, handling, installation) that will have a useful life of 6 years, cut labor and energy costs by $500 annually (in today's dollars). The expected inflation rate is 3%. Option 2 is to overhaul the old machine to increase its capability at an estimated cost of $1000. This overhaul would also allow the machine to last 6 more years. There is no saving in labor or energy with this option. If purchased, the new machine will be depreciated using MACRS GDS with a recovery period of 5 years. Salvage value of the German machine is estimated at $500 after 8 years. Salvage value of the used machine is estimated at $300. The company typically invests in any project with after tax earnings of more than the 10 percent. The company's federal tax rate is 35 Percent and state taxes are 7.7%. Use current currency rate for Euro at Dollar conversion. The Company only has $34000 to invest at this time. Using after tax cash flow analysis and the present worth method (at a minimum) and a breakeven in years (between the alternatives) analysis, what should Bennie do
