|
Lang Industrial Systems Company (LISC) is trying to decide
between two different conveyor belt systems. System A costs
$228,000, has a four-year life, and requires $72,000 in pretax
annual operating costs. System B costs $324,000, has a six-year
life, and requires $66,000 in pretax annual operating costs.
Suppose LISC always needs a conveyor belt system; when one wears
out, it must be replaced. Assume the tax rate is 35 percent and the
discount rate is 10 percent.
|
|
Calculate the EAC for both conveyor belt systems.
(Negative amounts should be 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? |
|
|
|
|
Fill in the missing numbers for the following income statement.
(Input all amounts as positive values. Do not round
intermediate calculations.)
|
| |
| Sales |
$ |
677,900 |
|
| Costs |
|
432,800 |
|
| Depreciation |
|
105,400 |
|
|
|
|
|
| EBIT |
$ |
|
|
| Taxes (34%) |
|
|
|
|
|
|
|
| Net income |
$ |
|
|
|
|
|
|
|
| What is the depreciation tax
shield? |
| Depreciation tax
shield |
$ |
|
You are evaluating two different silicon wafer milling machines.
The Techron I costs $258,000, has a three-year life, and has pretax
operating costs of $69,000 per year. The Techron II costs $450,000,
has a five-year life, and has pretax operating costs of $42,000 per
year. For both milling machines, use straight-line depreciation to
zero over the project’s life and assume a salvage value of $46,000.
If your tax rate is 35 percent and your discount rate is 9 percent,
compute the EAC for both machines. (Negative amounts should
be indicated by a minus sign. Do not round intermediate
calculations and round your answers to 2 decimal places, e.g.,
32.16.)
|
|
EAC |
| Techron I |
$ |
| Techron II |
$ |
|
| Which machine do you
prefer? |
|
|
|
|
