Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 8, Problem 15P
Summary Introduction
To decide: Whether Company B should continue to rent, purchase its current machine, or purchase the advanced machine.
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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
$260,000.
This machine will require
$17,000
per year in ongoing maintenance expenses and will lower bottling costs by
$15,000
per year. Also,
$39,000
will be spent upfront training the new operators of the machine.
Suppose the appropriate discount rate is
9%
per year and the machine is purchased today. Maintenance and bottling costs are paid 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 corporate tax rate is
20%.
Should Beryl's Iced Tea…
Beryl's Iced Tea currently rents a bottling machine for $52,000 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 $25,000 per year in ongoing maintenance expenses.
b. Purchase a new, more advanced machine for $250,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be
spent up front to train the new operators of the machine.
Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that
the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%.
Should Beryl's Iced…
Beryl's Iced Tea currently rents a bottling machine for $54,000 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 $255,000. This machine will require $20,000 per year in ongoing maintenance expenses and will lower botting costs by $13,000 per year. Also
$40,000 will be spent upfront training the new operators of the machine.
Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and botting costs are paid 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 ife with a negligible salvage value. The marginal corporate tax rate is 35%.
Should Beryl's Iced Tea…
Chapter 8 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Table 8.1 Spreadsheet HomeNets Incremental...Ch. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - One year ago, your company purchased a machine...Ch. 8 - Prob. 15PCh. 8 - Markov Manufacturing recently spent 15 million to...Ch. 8 - Prob. 17PCh. 8 - Arnold Inc. is considering a proposal to...Ch. 8 - Bay Properties is considering starting a...Ch. 8 - Prob. 21PCh. 8 - Prob. 22P
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