Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $252,000, has a four-year life, and requires $78,000 in pretax annual operating costs. System B costs $354,000, has a six-year life, and requires $72,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 34 percent and the discount rate is 8 percent. Calculate the EAC for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B EAC 127564.C Which conveyor belt system should the firm choose? • System B ○ System A

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $252,000, has a four-year life, and requires $78,000 in pretax annual operating costs. System B costs $354,000, has a six-year life, and requires $72,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 34 percent and the discount rate is 8 percent. Calculate the EAC for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B EAC 127564.C Which conveyor belt system should the firm choose? • System B ○ System A

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Lang Industrial Systems Company (LISC) is trying to decide between two different
conveyor belt systems. System A costs $252,000, has a four-year life, and requires
$78,000 in pretax annual operating costs. System B costs $354,000, has a six-year life,
and requires $72,000 in pretax annual operating costs. Suppose LISC always needs a
conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is
34 percent and the discount rate is 8 percent.
Calculate the EAC for both conveyor belt systems. (Negative amounts should be
indicated by a minus sign. Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
System A
System B
EAC
127564.C
Which conveyor belt system should the firm choose?
• System B
○ System A

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Step 1: Determine the after-tax cash flows for System A.

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Step 2: Determine the after-tax cash flows for System B.

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Step 3: Determine the EAC for System A.

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Step 4: Determine the EAC for System B.

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Step 5: Decide the better choice.

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