Question

Gluon Inc. is considering the purchase of a new glueball. It can purchase the glueball for $150,000 and sell its

old glueball which is fully depreciated for $26,000.  The new equipment has a 10 year useful life and saves $34,000 per year in expenses.  The opportunity cost for capital is 11% and their 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.

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