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Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System...

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Finance

Letang Industrial Systems Company (LISC) is trying to decidebetween two different conveyor belt systems. System A costs$280,000, has a four-year life, and requires $85,000 in pretaxannual operating costs. System B costs $360,000, has a six-yearlife, and requires $79,000 in pretax annual operating costs.Suppose the company always needs a conveyor belt system; when onewears out, it must be replaced. Assume the tax rate is 23 percentand the discount rate is 10 percent. calculate the EAC for bothconveyor belt systems to 2 decimal places and a negative answershould be indicated by a minus sign

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3.9 Ratings (785 Votes)
System A Time line 0 1 2 3 4 Cost of new machine 280000 Initial Investment outlay 280000 Sales 0 0 0 0 Profits Salesvariable cost 0 0 0 0 Operating cost 85000 85000 85000 85000 Depreciation Cost of equipmentno of years 70000 70000 70000 70000 Pretax cash flows 155000 155000 155000 155000 taxes Pretax cash flows1tax 119350 119350 119350 119350 Depreciation 70000 70000 70000 70000 after tax operating cash flow 49350 49350 49350 49350 Tax shield on salvage    See Answer
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Letang Industrial Systems Company (LISC) is trying to decidebetween two different conveyor belt systems. System A costs$280,000, has a four-year life, and requires $85,000 in pretaxannual operating costs. System B costs $360,000, has a six-yearlife, and requires $79,000 in pretax annual operating costs.Suppose the company always needs a conveyor belt system; when onewears out, it must be replaced. Assume the tax rate is 23 percentand the discount rate is 10 percent. calculate the EAC for bothconveyor belt systems to 2 decimal places and a negative answershould be indicated by a minus sign

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