​Beryl's Iced Tea currently rents a bottling machine for $ 53000 per​ year, including all maintenance...

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Finance

​Beryl's Iced Tea currently rents a bottling machine for $ 53000per​ year, including all maintenance expenses. It is consideringpurchasing a machine​ instead, and is comparing two​ options: A.Purchase the machine it is currently renting for $ 150000. Thismachine will require $ 20000 per year in ongoing maintenanceexpenses. B. Purchase a​ new, more advanced machine for $ 250000.This machine will require $ 15000 per year in ongoing maintenanceexpenses and will lower bottling costs by $ 10000 per year.​ Also,$ 40000 will be spent upfront training the new operators of themachine. Suppose the appropriate discount rate is 8 % per year andthe machine is purchased today. Maintenance and bottling costs arepaid 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 marginalcorporate tax rate is 30 %. 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 FCFassociated with each alternative.​ (Note: the NPV will be​negative, and represents the PV of the costs of the machine ineach​ case.)

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