part 2 #5

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $200,000 and sell its old low-pressure glueball, which is fully depreciated, for $36,000. The new equipment has a 10-year useful life and will save $44,000 a year in expenses. The opportunity cost of capital is 8%, and the firms tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value.

WHAT IS EQUIVALENT ANNUAL SAVINGS?