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please answer this question in one and half hour, post it even if you haven't finish Berryl's Iced Tea currently rents a bottling machine for
please answer this question in one and half hour, post it even if you haven't finish
Berryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: Option 1: Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expenses; Option 2: Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year. Also, $35,000 will be spent up-front in training new operators of the machine. Suppose the discount rate is 8% p.a. and the machine is purchased today. This product line will last for five years. All machines have the same capacity of producing the products required. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. All machines are depreciated via the straight-line method over five years with zero salvage value. The corporate tax rate is 30%. Assume the tax credit is realised in the year when the loss is incurred. Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? (8 marks)Step by Step Solution
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