The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A 0 1234 $48,000 11,600 11,600 11,600+ replace Machine B $58,000 11,200 11,200 11, 200 11,200 replace These costs are expressed in real terms. a. Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge? Assume a 12% real discount rate and ignore taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A 0 1234 $48,000 11,600 11,600 11,600+ replace Machine B $58,000 11,200 11,200 11, 200 11,200 replace These costs are expressed in real terms. a. Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge? Assume a 12% real discount rate and ignore taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the
following costs:
Year Machine A
0
1
2
3
4
$48,000
11,600
11,600
11,600+ replace
Machine A
Machine B
Machine B
$58,000
11, 200
11, 200
These costs are expressed in real terms.
a. Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for
that machine's economic life, what annual rental payment would you have to charge? Assume a 12% real discount rate and ignore
taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
Annual Rental
Payment
11,200
11,200 replace
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