Question

Matta Manufacturing is trying to decide between two different conveyor belt systems. System A costs $208,000, has a four-year life, and requires $67,000 in pretax annual operating costs. System B costs $294,000, has a six-year life, and requires $61,000 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 34 percent and the discount rate is 8 percent.

Calculate the EAC for both conveyor belt systems. (Your answers should be a negative value and 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?

Answer 1