Letang industrial systems company (lisc) is trying to decide between two different conveyor belt systems. system a costs $265,000, has a four-year life, and requires $73,000 in pretax annual operating costs. system b costs $345,000, has a six-year life, and requires $67,000 in pretax annual operating costs. the company always needs a conveyor belt system; when one wears out, it must be replaced. assume the tax rate is 21 percent and the discount rate is 8 percent. calculate the eac 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 EAC = -$137,679.01

System B EAC = -$127,558.81

Explanation:

Denote i = discount rate = 8%; n= number of compounding period

For system A, the after tax cost of operation is 73,000 x (1-21%) = 57,670

- NPV of system A = -265,000 - [ 57,670/8%] / [ 1 - (1+8%)^-4] = -$456,010.3549

- EAC = ( NPV x i ) / [ 1 - (1+i)^-n) = (-456,010.3549 x 8%) / ( 1 - 1.08^-4) = -$137,679.01

For system B, the after tax cost of operation is 67,000 x (1-21%) = 52,930

- NPV of system B = -345,000 - [ 52,930/8%] / [ 1 - (1+8%)^-6] = -$589,689.0206

- EAC = ( NPV x i ) / [ 1 - (1+i)^-n) = (-589,689.0206 x 8%) / ( 1 - 1.08^-6) = -$127,558.81

due to the changes the federal reserve is making the unused reserves will impact the economy by them facing inflation. inflation is definfed as the increase in pricing of a good or service but the decline of the value of money used for purchasing those items. when the economy has a high inflation rate, they are subject to money loss and hurt on the economy.