Question

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $268,000, has a four-year life, and requires $82,000 in pretax annual operating costs. System B costs $378,000, has a six-year life, and requires $76,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. HISC 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.

What is the EAC for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.)

	EAC
System A	$
System B	$

   

Which conveyor belt system should the firm choose?

System B System A

Answer 1