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Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems.


Lang Industrial Systems Company (LISC) 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. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 30 percent and the discount rate is 9 percent.

 
Calculate the EAC 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))

EAC
System A $
System B $

 
Which conveyor belt system should the firm choose?
System B
System A

 
SOLUTION PREVIEW [EXCEL]
System A 
Year
Initial Investment
Costs
Depreciation
OCF
Net cash flows
PV@9%
0
-260000
-260000
 $  -260,000.00
1
-80000
 $          65,000
 $        -36,500
-36500
 $    -33,486.24
2
-80000
 $          65,000
 $        -36,500
-36500
 $    -30,721.32

 
File name: Lang-Industrial.xls File type: application/vnd.ms-excel Price: $8