Respond to the following case facts:
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 various options: (1) Continue to rent. (2) Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expenses. (3) Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year. Also, $35,000 will be spent upfront in training the new operators of the machine.
Assume projected revenues from this line of business to be $75,000 currently, and anticipated growth of revenue of 2% annually. The projected revenues will be the same regardless of which alternative bottling option management chooses. Assume a discount rate of 8%. Maintenance and bottling costs are paid at the end of each year, as is the rent due on the machine.
Assume that both machines will be depreciated by straight-line method with a useful life of 10 years with no residual (salvage) value. The marginal corporate tax rate is 35%.
Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine?
Prepare a report (3-5 pages) on your conclusions. Explain your approach, underlying assumptions, and computations. Discuss the limitations of your assumptions. Present your computations. Discuss the business applications of this exercise. Use at least 3 references and apply APA format to the report.