CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264807475
Author: Ross
Publisher: MCG CUSTOM
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Question
Chapter 6, Problem 15QAP
Summary Introduction
To calculate: NPV and EAC of both systems to choose the better conveyor belt.
Introduction: The term
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Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $220,000, has a four-year life,
and requires $70,000 in pretax annual operating costs. System B costs $312,000, has a six-year life, and requires $64,000 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 25 percent and the discount rate is 8 percent.
Calculate the NPV for both conveyor belt systems.
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to
2 decimal places, e.g., 32.16.
> Answer is complete but not entirely correct.
System A
$
15,579.69 x
System B
$
713,268.58 x
Which conveyor belt system should the firm choose?
System A✔
System B
Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $256,000, has a four-year life, and requires $79,000 in pretax annual operating costs. System B costs $360,000, has a six-year life, and requires $73,000 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 24 percent and the discount rate is 10 percent. Calculate the NPV for both conveyor belt systems.
Note: A negative answer should be indicated by a minus sign. 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?
multiple choice
System A
System B
Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $427,000, has a 6-year life, and requires $115,000 in pretax annual operating costs. System B costs $502,000, has an 8-year life, and requires $79,000 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 33 percent and the discount rate is 24 percent. Which system should the firm choose and why?
a. System B because its net present value is -$612,240
b. No option is correct
c. System A because its net present value is $211,516
d. System A because its net present value is -$588,792
Chapter 6 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQCh. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQCh. 6 - Prob. 6CQCh. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQCh. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...
Ch. 6 - Prob. 11CQCh. 6 - To answer the next three questions, refer to the...Ch. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Calculating Project NPV Down Under Boomerang,...Ch. 6 - Calculating Project Cash Flow from Assets In the...Ch. 6 - Prob. 5QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 7QAPCh. 6 - Prob. 8QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Calculating Salvage Value An asset used in a...Ch. 6 - Calculating NPV Thurston Petroleum is considering...Ch. 6 - Prob. 12QAPCh. 6 - Cost-Cutting Proposals Starset Machine Shop is...Ch. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 15QAPCh. 6 - Prob. 16QAPCh. 6 - NPV and Bonus Depreciation Eggz, Inc., is...Ch. 6 - Prob. 18QAPCh. 6 - Prob. 19QAPCh. 6 - Prob. 20QAPCh. 6 - Prob. 21QAPCh. 6 - Prob. 22QAPCh. 6 - Prob. 23QAPCh. 6 - Prob. 24QAPCh. 6 - Prob. 25QAPCh. 6 - Prob. 26QAPCh. 6 - Prob. 27QAPCh. 6 - Prob. 28QAPCh. 6 - Prob. 29QAPCh. 6 - Prob. 30QAPCh. 6 - Prob. 31QAPCh. 6 - Prob. 32QAPCh. 6 - Prob. 33QAPCh. 6 - Prob. 34QAPCh. 6 - Prob. 35QAPCh. 6 - Prob. 36QAPCh. 6 - Prob. 37QAPCh. 6 - Prob. 38QAPCh. 6 - Prob. 39QAPCh. 6 - Prob. 40QAPCh. 6 - Prob. 41QAPCh. 6 - Prob. 42QAPCh. 6 - Prob. 1MCCh. 6 - GOODWEEK TIRES, INC. After extensive research and...
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