Mathematics, 24.11.2020 06:00 ochoacesar2000

Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $280,000, has a four-year life, and requires $85,000 in pretax annual operating costs. System B costs $360,000, has a six-year life, and requires $79,000 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 10 percent.

Answers: 3

Show answers

Answers

Answer from: emiliemon5114

We have to calculate the EAC for both the conveyor belt system.

Solutions :

Equivalent Annual Cost or (EAC) for the SYSTEM-A

$\text{Operating cash flow } = \text{Pre-tax annual operating cost (1-tax rate )} + (\text{depreciation expense} \times$ tax rate )

$=-855,000(1-0.23)+\left[\left(\frac{280,000}{4}\right)\times 0.23\right]$

$= (-85,000 \times 0.77 ) + (70,000 \times 0.23)$

= $ 49,350

Year Annual Cost flow Present value factor Present Value of Annual

at 10% cash flow

1 -49,350 0.909091 -44,863.64

2 -49,350 0.826446 -40,785.12

3 -49,350 0.751315 -37,077.39

4 -49,350 0.683013 -33,706.71

Total $ 3.169865 $ -156,432.86

Therefore, Net Present value = present value of the annual cash flow - initial investment.

= 156,432.86 - 280,000

= $ 436,432.86 (negative)

Now the EAC or the Equivalent Annual Cost for System A :

$\text{EAC}= \text{Net present value / (PVIFA 10 percent, 4 years)}$

$=\frac{436,432.86}{3.169865}$

$= 137,681.86 $ dollar (negative)

$\text{Operating cash flow } = \text{Pre-tax annual operating cost (1-tax rate )} + (\text{depreciation expense} \times$ tax rate)

$=79,000(1-0.23)+\left[\left(\frac{360,000}{6}\right) \times 0.23\right]$

$=(-78,000 \times 0.77)+(60,000 \times 0.23)$

= -$ 47,030

Year Annual Cost flow Present value factor Present Value of Annual

at 10% cash flow

1 -47,030 0.909091 -42,754.55

2 -47,030 0.826446 -38,867.77

3 -47,030 0.751315 -35,334.34

4 -47,030 0.683013 -32,122.12

5 -47,030 0.620921 -29,201.93

6 -47,030 0.564474 -26,547.21

Total $ 4.355261 $ -204,827.91

Net Present Value = Present Value of annual cash inflows – Initial Investment

$= 204,827.91 - 360,000$

= -$ 564,827.91 (negative)

EAC for system B:

Equivalent Annual Cost for system B $=\frac{\text{net present value}}{\text{PVIFA 10 \text percent, 6 years}}$

$=\frac{-564,827.91}{4.355261}$

= -$129,688.66 (negative)

Answer from: Quest

221,500 is the answer

Answer from: Quest

step-by-step explanation:

Another question on Mathematics

Mathematics, 21.06.2019 21:40

Drag the tiles to the correct boxes to complete the pairs. label each function. as even , odd, or neither.

Answers: 1

Answer

Mathematics, 21.06.2019 23:00

What is the absolute value of -100000000000000?

Answers: 2

Answer

Mathematics, 21.06.2019 23:00

Afamily went out to dinner and their bill was $113.if they want to leave a 19% tip, how much should they leave.

Answers: 2

Answer

Mathematics, 22.06.2019 00:00

Technicians have installed a center pivot, circular irrigator for a farm that covers 25 acres. a.) how long is the irrigation boom (in feet) from the center pivot to its farthest extent? b.) if the irrigation boom makes 4 full revolutions in a day, how many miles does the end of the boom travel in 5 days?

Answers: 1

Answer

You know the right answer?

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

Questions