# Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for \$140,000 and sell its old low-pressure glueball, which is fully depreciated, for \$24,000. The new equipment has a 10-year useful life and will save \$32,000 a year in expenses. The opportunity cost of capital is 8%, and the firm’s tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for \$140,000 and sell its old low-pressure glueball, which is fully depreciated, for \$24,000. The new equipment has a 10-year useful life and will save \$32,000 a year in expenses. The opportunity cost of capital is 8%, and the firm’s tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Step 1

Calculation of Annual Depreciation Tax Shield:

Step 2

Calculation of Present Value of Purchase:

Step 3

Calculation of Equivalent Annual Cost:

...

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