Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $220,000 and sell its old low pressure glueball, which is fully depreciated, for $40,000. The new equipment has a 10-year useful life and will save $48,000 a year in expenses. The Opportunity cost of capital is 10%, and the firm tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places. Equivalent Annual Savings =

Calculation of equivalent annual savings: Answer: Equivalent annual savings is $14,777.60…

Answered: Gluon Inc. is considering the purchase…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $220,000 and sell its old low pressure glueball, which is fully depreciated, for $40,000. The new equipment has a 10-year useful life and will save $48,000 a year in expenses. The Opportunity cost of capital is 10%, and the firm tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.

Equivalent Annual Savings =

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