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

step-by-step explanation:

abc

Answer from: Quest

These graph is cross the yaxis and x axis two ways.
Which statement is true regarding the graphed functions?

Another question on Mathematics

Mathematics, 21.06.2019 17:30

The length of triangle base is 26. a line, which is parallel to the base divides the triangle into two equal area parts. find the length of the segment between triangle legs.

Answers: 3

Answer

Mathematics, 21.06.2019 21:30

Plz ( true - false) all triangles have interior angles whose measure sum to 90.

Answers: 2

Answer

Mathematics, 22.06.2019 00:30

Jan accidently ran 7 minutes longer than he was supposed to. write an expression for the total amount of time jan ran if she was supposed to run m minutes

Answers: 1

Answer

Mathematics, 22.06.2019 00:30

Can someone me immediately, this is due by midnight! if you can't see the question, i'll text it to you. show the steps you took to get your answer.

Answers: 2

Answer

You know the right answer?

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

Questions