San Diego State University Operations And Supply Chain Management Assignment Help - maintenance expenses

Question - Beryl’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:
a. Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per
year in ongoing maintenance expenses.
b. 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 upfront in training the new operators of the machine. Suppose the appropriate discount rate
is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the
end of each ...Read More 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 marginal corporate tax rate is 35%. Should Beryl’s Iced Tea continue to rent,
purchase its current machine, or purchase the advanced machine? ...Read Less

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