Pretax annual operating costs


Question: Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $456,000, has a 3-year life, and requires $150,000 in pretax annual operating costs. System B costs $521,000, has a 5-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. EISC always needs a conveyor belt system; when one wears out, it must be replaced. If the tax rate is 31 percent and the discount rate is 15 percent, the EAC for project A is $ ___ and the EAC for project B is $ ___ . Therefore, the firm should choose project A or B. (Negative amount should be indicated by a minus sign. Round answers to 2 decimal places, e.g. 32.16.)

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Finance Basics: Pretax annual operating costs
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