Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $220,000, has a four-year li and requires $70,000 in pretax annual operating costs. System B costs $312,000, has a six-year life, and requires $64,000 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 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?

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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Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $220,000, has a four-year life,
and requires $70,000 in pretax annual operating costs. System B costs $312,000, has a six-year life, and requires $64,000 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 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?
O System A
O System B
Transcribed Image Text:Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $220,000, has a four-year life, and requires $70,000 in pretax annual operating costs. System B costs $312,000, has a six-year life, and requires $64,000 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 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? O System A O System B
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