Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $80,000 and sell its old low-pressure glueball, which is fully depreciated, for $14,000. The new equipment has a 10-year useful life and will save $18,000 a year in expenses before tax. The opportunity cost of capital is 10%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. × Answer is complete but not entirely correct. Equivalent annual savings $ 5,252.45

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Gluon Incorporated is considering the purchase of a new high pressure glueball. It can
purchase the glueball for $80,000 and sell its old low-pressure glueball, which is fully
depreciated, for $14,000. The new equipment has a 10-year useful life and will save
$18,000 a year in expenses before tax. The opportunity cost of capital is 10%, and the
firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon
can depreciate 100% of the investment immediately.
Note: Do not round intermediate calculations. Round your answer to 2 decimal
places.
× Answer is complete but not entirely correct.
Equivalent annual savings
$
5,252.45
Transcribed Image Text:Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $80,000 and sell its old low-pressure glueball, which is fully depreciated, for $14,000. The new equipment has a 10-year useful life and will save $18,000 a year in expenses before tax. The opportunity cost of capital is 10%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. × Answer is complete but not entirely correct. Equivalent annual savings $ 5,252.45
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