Tanaka Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a 4-year life, and requires $97,000 in pretax annual operating costs. System B costs $375,000, has a 6-year life, and requires $91,000 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 21 percent and the discount rate is 9 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.)
Tanaka Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a 4-year life, and requires $97,000 in pretax annual operating costs. System B costs $375,000, has a 6-year life, and requires $91,000 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 21 percent and the discount rate is 9 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.)
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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![Problem 6-16 Comparing Mutually Exclusive Projects
Tanaka Industrial Systems Company is trying to decide between two different conveyor
belt systems. System A costs $295,000, has a 4-year life, and requires $97,000 in pretax
annual operating costs. System B costs $375,000, has a 6-year life, and requires
$91,000 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 21 percent and the discount rate is 9 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.)
System A
System B
Which conveyor belt system should the firm choose?
O System A
O System B](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc8514667-bf86-4079-a5fb-967fac7b38d7%2F4d14c865-39d2-4dcb-914e-688158dd59e6%2Fib9onnj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 6-16 Comparing Mutually Exclusive Projects
Tanaka Industrial Systems Company is trying to decide between two different conveyor
belt systems. System A costs $295,000, has a 4-year life, and requires $97,000 in pretax
annual operating costs. System B costs $375,000, has a 6-year life, and requires
$91,000 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 21 percent and the discount rate is 9 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.)
System A
System B
Which conveyor belt system should the firm choose?
O System A
O System B
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