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 the tax rate is 34 percent and the discount rate is 8 percent.

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

SOLVE FOR EAC:

System A = $ ????
System B = $ ????

Which conveyor belt system should the firm choose?

System A or System B?

Expert Solution

jeff jeffy answered 1 year ago

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