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 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 25percent 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 roundyour answers to 2 decimal places, e.g., 32.16.Answer is complete but not entirely correct.System A$38,562.29 XSystem B$25,802.08 xWhich conveyor belt system should the firm choose?System ASystem B

ExplanationStep 1: Calculate DepreciationDepreciation is calculated using the straight-line method:•…

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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Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax annual operating costs. System B costs $355,000, has a six-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. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 21 percent, and the discount rate is 8 percent. Which project should the firm choose?
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $290,000, has a four - year life, and requires $93, 000 in pretax annual operating costs. System B costs $370,000, has a six - year life, and requires $87,000 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 25 percent and the discount rate is 8 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.).
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $330,000, has a four-year life, and requires $125,000 in pretax annual operating costs. System B costs $410,000, has a six-year life, and requires $119,000 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 23 percent and the discount rate is 8 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
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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
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a 4-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a 6-year life, and requires $115,000 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 11 percent. Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,810,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $450,000, and the fixed asset will have a market…
A company is trying to decide between two different conveyor belt systems. System A costs $300,000, has a 4-year life, and requires $101,000 in pretax annual operating costs. System B costs $380,000, has a 6-year life, and requires $95,000 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 22 percent and the discount rate is 10 percent. A. Calculate the NPV for both conveyor belt systems. (Do not round intermediate calculations ) B. Which conveyor belt system should the firm choose? Please use excel and show equations used.

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