Question

The Borstal Company has to choose between two machines that do the same job but have...

The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs:

Year Machine A Machine B
0 $42,500 $52,500
1 10,500 9,000
2 10,500 9,000
3 10,500 + replace 9,000
4 9,000 + replace


These costs are expressed in real terms.

a. Suppose you are Borstal’s financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine’s economic life, what annual rental payment would you have to charge? Assume a 9% real discount rate and ignore taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)




c. If there is steady 3% per year inflation, what will be the annual rental payment for machine B for the second year? (Enter your answer as a positive value rounded to 2 decimal places.)

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Borstal Company has to choose between two machines that do the same job but have...
The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A Machine B 0 $48,500 $58,500 1 11,700 11,400 2 11,700 11,400 3 11,700 + replace 11,400 4 11,400 + replace These costs are expressed in real terms. a. Suppose you are Borstal’s financial manager. If you had to buy one or the other machine and rent it to the production manager for...
The Borstal Company has to choose between two machines that do the same job but have...
The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A Machine B 0 $47,000 $57,000 1 11,400 10,800 2 11,400 10,800 3 11,400 + replace 10,800 4 10,800 + replace These costs are expressed in real terms. 1. Suppose you are Borstal’s financial manager. If you had to buy one or the other machine and rent it to the production manager for...
M Digem Mines must choose between two alternative machines A and B which perform the same...
M Digem Mines must choose between two alternative machines A and B which perform the same function, but which have lives of 2 and 4 years, respectively. The initial cost of machine A is $30,000 and its annual operating costs are expected to be $6,000. The initial cost of machine B is $42,000 and its annual operating costs are expected to be $9,000. Assume that the projects are repeatable and there are no constraints on the availability of funds. Digem...
Cuomo Machinery Company must choose between two machines, Machine A and Machine B, and the company...
Cuomo Machinery Company must choose between two machines, Machine A and Machine B, and the company can only choose one machine. The company plans to replace the machine when it wears out on a perpetual basis, NOT for one-time use. • Machine A costs $40,000 now and will last for three years. It will require an aftertax cost of $10,000 per year after all relevant expenses. • Machine B costs $5,000 now and will last for four years. The after-tax...
Question: ?Benny's Arcade has five video game machines. The average time between machine failures is 25...
Question: ?Benny's Arcade has five video game machines. The average time between machine failures is 25 hou... ?Benny's Arcade has five video game machines. The average time between machine failures is 25 hours.? Jimmy, the maintenance? engineer, can repair a machine in 10 hours on average. The machines have an exponential failure? distribution, and Jimmy has an exponential? service-time distribution. a. ?Jimmy's utilization is ?. ?(Enter your response rounded to three decimal? places.) b. The average number of machines out...
"A company is considering two types of machines for a manufacturing process. Machine A has an...
"A company is considering two types of machines for a manufacturing process. Machine A has an immediate cost of $87,000, and its salvage value at the end of 8 years of service life is $29,000. The operating costs of this machine are estimated to be $5700 per year. Extra income taxes are estimated at $1500 per year. Machine B has an immediate cost of $44,000, and its salvage value at the end of 8 years' service is neglible. The annual...
"A company is considering two types of machines for a manufacturing process. Machine A has an...
"A company is considering two types of machines for a manufacturing process. Machine A has an immediate cost of $61,000, and its salvage value at the end of 4 years of service life is $14,000. The operating costs of this machine are estimated to be $3900 per year. Extra income taxes are estimated at $1800 per year. Machine B has an immediate cost of $45,000, and its salvage value at the end of 4 years' service is neglible. The annual...
Suppose that your firm is trying to decide between two machines that will do the same...
Suppose that your firm is trying to decide between two machines that will do the same job. Machine A costs $50,000, will last for ten years and will require operating costs of $5,000 per year. At the end of ten years it will be scrapped for $10,000. Machine B costs $60,000, will last for seven years and will require operating costs of $6,000 per year. At the end of seven years it will be scrapped for $5,000. Which is a...
Suppose that your firm is trying to decide between two machines that will do the same...
Suppose that your firm is trying to decide between two machines that will do the same job. Machine A costs $50,000, will last for ten years and will require operating costs of $5,000 per year. At the end of ten years it will be scrapped for $10,000. Machine B costs $60,000, will last for seven years and will require operating costs of $6,000 per year. At the end of seven years it will be scrapped for $5,000. Which is a...
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that...
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $9 million but realizes after-tax inflows of $3.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $14 million and realizes after-tax inflows of $3 million per year for 8 years, after which it must be replaced. Assume that machine prices are...