Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000,...

Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 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 25 percent and the discount rate is 9 percent.

Calculate the EAC for both conveyor belt systems. (Your answers should be negative values and indicated by minus signs. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Which conveyor belt system should the firm choose?

Expert Solution

System B should choose

jeff jeffy answered 2 years ago

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