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Calculate the NPV Beryis lced Tea currently rents a botting machino for $50,000 per yoar, including all maintenance fixpenses. It is considenng purchasing a machine
Calculate the NPV
Beryis lced Tea currently rents a botting machino for $50,000 per yoar, including all maintenance fixpenses. It is considenng purchasing a machine instead and is comparing two cotions: a. Purchase the machine it is currently renting for $155,000. This machine will require $22,000 per yeat in ongoing maintenance expenses: b. Purchase a new, more advanced machine for $255,000. This machine will require $18,000 per year in ongoing maintanance expenses and will lower botting costs by $12.060 per yeav. Also $35,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 8% pec year and the machine is purchased today. Maintenance and bocting costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines wil be depreclated va the straightline method over seven years and that they have a 10 -year life with a negligale salvage value. The marginal corporate tax rate is 25%. Should Beryls 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 curtent machine is : (Pound to the nearest dollat) The NPV of purchasing the current machine is (Round to tho neavest dolar) Step by Step Solution
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