Question

Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $355,000, has a four-year life, and requires $145,000 in pretax annual operating costs. System B costs $435,000, has a six-year life, and requires $139,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 23 percent and the discount rate is 9 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.)

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,715,000 in annual sales, with costs of $625,000. The tax rate is 21 percent and the required return on the project is 10 percent. What is the project’s NPV? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, and round your answer to 2 decimal places, e.g., 1,234,567.89.)

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,684,000 in annual sales, with costs of $651,000. If the tax rate is 24 percent, what is the OCF for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1