Can anyone help me with a finance problem? I'm taking a corporate finance class for my MBA (I'm a marketing option, suck in finance). Here is the problem, any help will be apperiated greatly!
The Expresso Roast Corporation is considering the purchase of a new bean roaster and grinder. The
revenues are expected to be the same for Expresso Roast no matter which machine is acquired. The Quick-
Roast machine has a cost of $50,000 and is expected to last 4 years with operating costs of $7,000 per
year. The Mellow-Roast Co. machine has a cost of $35,000 and operating costs of $2,500 per year but will
last for only 2 years. The discount rate is 8%.
(a) Compute the equivalent annuity cost of each machine. Which machine should be chosen?
(b) The company has committed to use the chosen machine in perpetuity. What is the present value of the
costs of operating a series of such machine in pertuity?