(Calculating EAC) The Templeton Manufacturing and Distribution Company of Tacoma, Washington, is contemplating the purchase of a new conveyor belt system for one of its regional distribution facilities. Both the alternatives it is considering will accomplish the same task, but the Eclipse model will cost substantially more than the Sabre model and will not have to be replaced for 10 years, whereas the Sabre model will need to be replaced in just 5 years. The costs of purchasing the two systems and the costs of operating them annually over their expected lives are as follows: Year Eclipse Sabre (1,400,000) (800,000) (25,000) (50,000) 2 (30,000) (50,000) 3 (30,000) (60,000) 4 (30,000) (60,000) 5 (40,000) (80,000) (40,000) 7 (40,000) 8 (40,000) (40,000) 10 (40,000) a. Templeton typically evaluates investments in plant improvements using a 12 per- cent required rate of return. What are the NPVS for the two systems? b. Calculate the EACS for the two systems. c. Based on your analysis of the two systems using both their NPVS and their EACS, which system do you recommend that the company pick? Why?
(Calculating EAC) The Templeton Manufacturing and Distribution Company of Tacoma, Washington, is contemplating the purchase of a new conveyor belt system for one of its regional distribution facilities. Both the alternatives it is considering will accomplish the same task, but the Eclipse model will cost substantially more than the Sabre model and will not have to be replaced for 10 years, whereas the Sabre model will need to be replaced in just 5 years. The costs of purchasing the two systems and the costs of operating them annually over their expected lives are as follows: Year Eclipse Sabre (1,400,000) (800,000) (25,000) (50,000) 2 (30,000) (50,000) 3 (30,000) (60,000) 4 (30,000) (60,000) 5 (40,000) (80,000) (40,000) 7 (40,000) 8 (40,000) (40,000) 10 (40,000) a. Templeton typically evaluates investments in plant improvements using a 12 per- cent required rate of return. What are the NPVS for the two systems? b. Calculate the EACS for the two systems. c. Based on your analysis of the two systems using both their NPVS and their EACS, which system do you recommend that the company pick? Why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Templetion typically evaluates investments in plant improvements using a 12 percent required rate of return . What are the NPVs for the two systems?
Transcribed Image Text:11-5. (Calculating EAC) The Templeton Manufacturing and Distribution Company of
Tacoma, Washington, is contemplating the purchase of a new conveyor belt system
for one of its regional distribution facilities. Both the alternatives it is considering
will accomplish the same task, but the Eclipse model will cost substantially more
than the Sabre model and will not have to be replaced for 10 years, whereas the
Sabre model will need to be replaced in just 5 years. The costs of purchasing the
two systems and the costs of operating them annually over their expected lives are
as follows:
Year
Eclipse
Sabre
(1,400,000)
(800,000)
1
(25,000)
(50,000)
(30,000)
(50,000)
3
(30,000)
(60,000)
4
(30,000)
(60,000)
5
(40,000)
(80,000)
(40,000)
7
(40,000)
(40,000)
(40,000)
10
(40,000)
a. Templeton typically evaluates investments in plant improvements using a 12 per-
cent required rate of return. What are the NPVS for the two systems?
b. Calculate the EACS for the two systems.
c. Based on your analysis of the two systems using both their NPVS and their EACS,
which system do you recommend that the company pick? Why?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education