CHALetang Industrial Systems Company (LISC) is trying to decide between two differentconveyor belt systems. System A costs $350,000, has a four-year life, and requires$141,000 in pretax annual operating costs. System B costs $430,000, has a six-year life,and requires $135,000 in pretax annual operating costs. Both systems are to bedepreciated straight-line to zero over their lives and will have zero salvage value.Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22percent and the discount rate is 8 percent.Calculate the NPV for both conveyor belt systems. (A negative answer should beindicated by a minus sign. Do not round intermediate calculations and round youranswers to 2 decimal places, e.g., 32.16.)Answer is complete but not entirely correct.System ASystem B$$-441,510.00 X-548,899.00Which conveyor belt system should the firm choose?

The amount by which a firm would increase in value due to taking up an investment is known as the…

Answered: Letang Industrial Systems Company…

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

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Tassie Ltd is considering replacing an old management system with a new one. Use the following information to determine the feasibility of this replacement plan and explain your decision in detail. Costs of new system: $80,000 Costs of old system: $95,000 Depreciations of new system: Prime cost to zero Depreciations of old system: $5,000 per year Life of old system: will be written off in 5 years if no replacement Life of new system: 5 years Salvage value of new system at the end of its life: $18,000 Salvage value of old system at the end of its life: $0 Market value of the old system now: $55,000 Total savings from the new system:…
please answer both questions fully.
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 25 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (A negative answer 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 Which conveyor belt system should the firm choose? O System A O System B 4
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $290,000; has a four-year life and requires $89,000 in pretax annual operating costs. System B costs $ 410,000; has a six-year life and required requires $79,00 in pretax operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 7.5 percent, which system should the firm choose?
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.
A utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of these
A conveyor system was purchased three years ago for $60,000 with an expected useful life of 10 years and no expected salvage value. Due to a change in product configuration, the conveyor system must be upgraded at a cost of $20,000. Maintenance on this system is approximately $4000 per year and the current system has a market value of $2000. Alternatively, the current system can be replaced with new equipment costing $65,000, with operating costs of $1,000 per year and an expected salvage of $10,000 after 7 years. Determine whether the company should keep or replace the defender now at an MARR of 15% per year. The current system is the Defender and the new system is the Challenger. What is the annual worth of the challenger?
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer 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 Which conveyor belt system should the firm choose? ○ System B O System A
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Using Goal Seek, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.
You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a three-year life, and has pretax operating costs of $72,000 per year. The Techron II costs $465,000, has a five-year life, and has pretax operating costs of $45,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $49,000. If your tax rate is 23 percent and your discount rate is 13 percent, compute the EAC for both machines
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three - year life, and has pretax operating costs of $73, 000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating costs of $46, 000 per year. For both milling machines, use straight - line depreciation to zero over the project's life and assume a salvage value of $50,000. If your tax rate is 25 percent and your discount rate is 9 percent, compute the EAC for both machines.

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