Peyton Manufacturing is trying to decide between two different conveyor belt systems.System A costs $248,000, has a four-year life, and requires $77,000 in pretax annualoperating costs. System B costs $348,000, has a six-year life, and requires $71,000 inpretax annual operating costs. Both systems are to be depreciated straight-line to zeroover their lives and will have zero salvage value. Suppose the company always needs aconveyor belt system; when one wears out, it must be replaced. Assume the tax rate is22 percent and the discount rate is 9 percent.Calculate the EAC for both conveyor belt systems. (Your answers should be negativevalues and indicated by minus signs. Do not round intermediate calculationsand round your answers to 2 decimal places, e.g., 32.16.)System ASystem B$-398,387.80

EAC or equivalent annual cost is the annual cost of owning and maintaining the asset over its entire…

Answered: Peyton Manufacturing is trying to…

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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Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life, and requires $78,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 24 percent and the discount rate is 8 percent. Calculate the EAC for both conveyor belt systems. Note: Your answers should be negative values and indicated by minus signs. 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 A System B
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?
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
I do not understand the PV and cannot find the appropriate table for this?
Dwight Donovan, the president of Walton Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation: the machine is expected to have a useful life of four years and no salvage value. Project 8 supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $102,000 and for Project B are $33,000. The annual expected cash inflows are $32,178 for Project A and $10,865 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Walton Enterprises' desired rate of return is 4 percent. (PV of $1 and PVA of $1 ) (Use appropriate foctor(s) from the tables provided.) Required o. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. Compute the approximate…
Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $335,000, has a four-year life, and requires $129,000 in pretax annual operating costs. System B costs $415,000, has a six-year life, and requires $123,000 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 24 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
A proposed building may be roofed in either composition roofing (C) or galvanized steel sheet (S). The composition roof costs $56,000 and is replaced every 5 years (assume at the same cost). The steel roof costs $68,000 but the useful life is very long. Neither roof has any salvage value, nor is maintenance needed. If the MARR is 10%, what minimum life must the steel roof have to make it the better alternative? (Report to the nearest whole year; don't bother interpolating.)
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax annual operating costs. System B costs $355,000, has a six-year life, and requires $83,000 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 21 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 A ○ System B
Tanaka Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $360,000, has a 4-year life, and requires $149,000 in pretax annual operating costs. System B costs $440,000, has a 6-year life, and requires $143,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 24 percent and the discount rate is 10 percent. Calculate the EAC 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.) Answer is complete but not entirely correct. System A -650,486.43 X System B -836,677.14 X $ $
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a 4-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a 6-year life, and requires $115,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 11 percent. Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,810,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $450,000, and the fixed asset will have a market…

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