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Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase...

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Accounting

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $140,000 and sell its old low-pressure glueball, which is fully depreciated, for $24,000. The new equipment has a 10-year useful life and will save $32,000 a year in expenses. The opportunity cost of capital is 8%, and the firms tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value.

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