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 pretaxannual 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 24percent 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 roundyour answers to 2 decimal places, e.g., 32.16.System ASystem BWhich conveyor belt system should the firm choose?System ASystem B

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

Answered: Rust Industrial Systems 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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Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $268,000, has a four-year life, and requires $82,000 in pretax annual operating costs. System B costs $378,000, has a six-year life, and requires $76,000 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 35 percent and the discount rate is 10 percent. Calculate the NPV 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.)
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F2
Rust Industrial Systems 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. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 25 percent and the discount rate is 9 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. Answer is complete but not entirely correct. System A $ 38,562.29 X System B $ 25,802.08 x Which conveyor belt system should the firm choose? System A System B
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:…
Delaney Company is considering replacing equipment that originally cost $532,000 and has accumulated depreciation of $372,400 to date. A new machine will cost $891,000. what is the the sunk cost in this situation?
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 ABC Ltd is analysing the costs and benefits of setting up an extra fast-food outlet in Adelaide. The predicted costs and income flows are provided below: $2 million site acquisition and development costs. The capital depreciation expense is $50,000 per year. Investment in plant and equipment of $600,000. The plant and equipment have an estimated useful life of 5 years and the residual value would be zero. The plant and equipment will be depreciated on a straight-line basis for tax purposes. The forecasted sales in year 1 is $600,000 and $800,000 per year thereafter. Labour and material costs are equivalent to 50 per cent of incremental sales. The policy (objective) is to sell the outlet at the end of year 3. The estimated selling price is $3.5 million. Sales in a similar outlet of ABC Ltd will decline by $80,000 per year due to loss of customers and experienced staff to the new venture. Other operating costs are about $150,000 per year (fixed) The net working capital requirement at…
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?
Crane Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value Machine A $77,000 8 years 0 Profitability index $19,900 $4,800 Machine A Which machine should be purchased? Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative. use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine B should be purchased. $188,000 8 years 0 $40,200 $9,860…
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?

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