Environmental Group is a subsidiary of Streamline Inc. that provides battery powered alternatives to the...
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Environmental Group is a subsidiary of Streamline Inc. that provides battery powered alternatives to the manufacturing sector. Environmental Group expects to retire all its New Wave 1 battery manufacturing equipment in the new year. At that point, Environmental Group is considering two options:
Option 1) Environmental Group rents its manufacturing equipment at an annual cost of $1,200,000 per year, paid mid-year. There are no maintenance costs.
Option 2) Environmental Group purchases new equipment for $11,000,000. The equipment will require maintenance of $250,000 per year and is expected to have a life span of 20 years with no salvage value at the end. Environmental Group uses the straight-line depreciation method. Suppose the discount rate is 4.5%, the companys tax rate is 25%, and all maintenance costs are paid at the beginning of the year, which is a better option for Environmental Group, "solve it on excel"
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