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In: Finance
EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has...
EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires $83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has...
EDP is trying to decide between two different conveyor belt
systems. System A costs $438,000, has a six-year life, and requires
$83,000 in pretax annual operating costs. System B costs $369,000,
has a five-year life, and requires $92,000 in pretax annual
operating costs. Both systems are to be depreciated straight-line
to zero over their lives and will have a zero salvage value.
Whichever system is chosen, it will not be replaced when it wears
out. The tax rate is 23...
EDP is trying to decide between two different conveyor belt systems. System A costs $320,000, has...
EDP is trying to decide between two different conveyor
belt systems. System A costs $320,000, has a four-year life, and
requires $85,000 in pretax annual operating costs. System B costs
$456,000, has a six-year life, and requires $54,000 in pretax
annual operating costs. Both systems are to be depreciated
straight-line to zero over their lives and will have a zero salvage
value. Whichever system is chosen, it will not be replaced when it
wears out. The tax rate is 23...
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $216,000,...
Peyton Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $216,000, has a four-year
life, and requires $69,000 in pretax annual operating costs. System
B costs $306,000, has a six-year life, and requires $63,000 in
pretax annual operating costs. Both systems are to be depreciated
straight-line to zero over their lives and will have zero salvage
value. Whichever system is chosen, it will not be replaced when it
wears out. The tax rate is 21...
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $232,000,...
Peyton Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $232,000, has a four-year
life, and requires $73,000 in pretax annual operating costs. System
B costs $330,000, has a six-year life, and requires $67,000 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...
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...
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $252,000,...
Peyton Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $252,000, has a four-year
life, and requires $78,000 in pretax annual operating costs. System
B costs $354,000, has a six-year life, and requires $72,000 in
pretax annual operating costs. Both systems are to be depreciated
straight-line to zero over their lives and will have zero salvage
value. Whichever system is chosen, it will not be replaced when it
wears out. The tax rate is 23...
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $204,000,...
Peyton Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $204,000, has a four-year
life, and requires $66,000 in pretax annual operating costs. System
B costs $288,000, has a six-year life, and requires $60,000 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...
Matta Manufacturing is trying to decide between two different conveyor belt systems. System A costs $272,000,...
Matta Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $272,000, has a four-year
life, and requires $83,000 in pretax annual operating costs. System
B costs $384,000, has a six-year life, and requires $77,000 in
pretax annual operating costs. Both systems are to be depreciated
straight-line to zero over their lives and will have zero salvage
value. Whichever system is chosen, it will not be replaced
when it wears out. The tax rate is 30...
Matta Manufacturing is trying to decide between two different conveyor belt systems. System A costs $264,000,...
Matta Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $264,000, has a four-year
life, and requires $81,000 in pretax annual operating costs. System
B costs $372,000, has a six-year life, and requires $75,000 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...
Matta Manufacturing is trying to decide between two different conveyor belt systems. System A costs $212,000,...
Matta Manufacturing is trying to decide between two different
conveyor belt systems. System A costs $212,000, has a four-year
life, and requires $68,000 in pretax annual operating costs. System
B costs $300,000, has a six-year life, and requires $62,000 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...
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