Directions: Please fill in the blanks for the YELLOW parts of this Economics question and answer the multiple choice question. I give excellent ratings thanks! Beryls Iced Tea currently rents a bottling machine for $53,000 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 $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per Suppose 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 year. Also, $40,000 will be spent upfront training the new operators of the machine. the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the 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 NPV of renting the machine is S (Round to the nearest dollar. Enter a negative NPV as a negative value.) The NPV of option A is $ (Round to the nearest dollar. Enter a negative NPV as a negative value.) The NPV of option B is S (Round to the nearest dollar. Enter a negative NPV as a negative value.) Which of the following is the best choice? (Select the best choice below.) O A. Purchase the current machine. O B. Rent the advanced machine. O C. Rent the current machine. O D. Purchase the advanced machine.
Directions: Please fill in the blanks for the YELLOW parts of this Economics question and answer the multiple choice question. I give excellent ratings thanks! Beryls Iced Tea currently rents a bottling machine for $53,000 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 $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per Suppose 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 year. Also, $40,000 will be spent upfront training the new operators of the machine. the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the 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 NPV of renting the machine is S (Round to the nearest dollar. Enter a negative NPV as a negative value.) The NPV of option A is $ (Round to the nearest dollar. Enter a negative NPV as a negative value.) The NPV of option B is S (Round to the nearest dollar. Enter a negative NPV as a negative value.) Which of the following is the best choice? (Select the best choice below.) O A. Purchase the current machine. O B. Rent the advanced machine. O C. Rent the current machine. O D. Purchase the advanced machine.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Directions: Please fill in the blanks for the YELLOW
parts of this Economics question and answer the
multiple choice question. I give excellent ratings
thanks!
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $160,000. This machine will require $23,000 per year in ongoing maintenance expenses.
b. Purchase a new, more advanced machine for $260,000. This machine will require $19,000 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 7% 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
the machine in each case.
The NPV of renting the machine is $
(Round to the nearest dollar. Enter a negative NPV as a negative value.)
The NPV of option A is $
(Round to the nearest dollar. Enter a negative NPV as a negative value.)
The NPV of option B is S
(Round to the nearest dollar. Enter a negative NPV as a negative value.)
Which of the following is the best choice? (Select the best choice below.)
O A. Purchase the current machine.
O B. Rent the advanced machine.
O C. Rent the current machine.
O D. Purchase the advanced machine.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education