Reference no: EM133057615

Question - Big Rock Brewery currently rents a bottling machine for $53,000 per year, 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 currently renting for $165,000, which will require $25,000 per year in ongoing maintenance expenses, or option b, which is to purchase a new, more advanced machine for $255,000, which will require $18,000 per year in ongoing maintenance expenses and will lower bottling costs by $15,000 per year. Also, $39,000 will be spent upfront in training the ators 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 are subject to a CCA rate of 30% and there will be a negligible salvage value in 10 years' time (the end of each machine's life). The marginal corporate tax rate is 38%. Should Big Rock Brewery continue to rent, purchase its current machine, or purchase the advanced machine? To make this decision, calculate the NPV of the FCF associated with each alternative.