Hi,

what are some steps I could use to get at -15,571? and how come 20,000 is in purchase current section as opposed to the maintenance section.

i Help Me Solve This X *Question Help Beryl's Iced Tea currently rents a bottling machine for $52,000 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 $255,000. This machine will require $20,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $40,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% 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 corporate tax rate is 20%. 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. The machine will cost $52,000 per year to rent. To find the free cash amount you use the following formula: FCF = Rent x (1 - Tax rate) The NPV of renting the machine is $ - 279,139 . (Round to the nearest dollar. Enter a negative NPV as a negative value.) The NPV for purchasing the current machine is found by finding the present value of the free cash flow for each of the 10 years and then subtracting the purchase price of the machine. Enter your answer in the answer box and then click Check Answer. 1 part remaining Clear All Check Answer CloseHelp Me Solve This X Question Help Beryl's Iced Tea currently rents a bottling machine for $52,000 per year, including all maintenance expenses. It is considering purchasing X The relevant FCF for option A is shown in the table below. 0 2 4 5 6 7 8 9 10 Maintenance - 25,000 - 25,000 - 25,000 -25,000 -25,000 -25,000 -25,000 -25,000 -25,000 -25,000 Depreciation 22,143 22,143 22,143 22,143 22,143 22,143 22,143 Capital Expenditures - 155,000 FCF (purchase current) - 155,000 - 15,571 - 15,571 - 15,571 - 15,571 -15,571 -15,571 -15,571 -20,000 -20,000 -20,000 NPV at 8% OK