Reference no: EM132940971

Question 1: Big Rock Brewery currently rents a bottling machine for $541000 per year1 including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two alternate options: option a is to purchase the machine it is currentty renting for $166300. which will require $24,000 per year in ongoing maintenance eavtpenses1 or option b, which is to purchase a new. more advanced machine for $255.00D. which will require $15006 per year in ongoing maintenance expenses and will lower bottling costs by sumo per year. Also. $35,DDD will he spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is TEE per year and the machine is purchased today. Maintenance and bottling costs are paid at the and of each year1 as is the rental of the machine. Assume also that the machines are subject to a GOA rate of 45% and there will be a negligible salvage value in 19 years' time {the end of each machine's life}. The marginal corporate tax rate is 35%. Should Big Rock Brewery continue to rent. purchase its current machine. or purchase the advanced machine? To matte this decision, calculate the NPV of the PCP associated with each altemativa. (Note: the NPVwiII be negative. and represents the PV the costs of the machine in each case.)