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 annual operating costs. System B costs $348,000, has a six-year life, and requires $71,000 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 9 percent. Calculate the EAC for both conveyor belt systems. (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 $ -398,387.80

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
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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 annual
operating costs. System B costs $348,000, has a six-year life, and requires $71,000 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 9 percent.
Calculate the EAC for both conveyor belt systems. (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
$
-398,387.80
Transcribed Image Text: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 annual operating costs. System B costs $348,000, has a six-year life, and requires $71,000 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 9 percent. Calculate the EAC for both conveyor belt systems. (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 $ -398,387.80
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