Question 1 Lang Industrial Systems Company (LISC) is trying to decide between tw

Question

Question 1

Lang Industrial Systems Company (LISC) 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. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 34 percent and the discount rate is 8 percent.

Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

  System A

??$

  System B

??$

Question 2

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $228,000, has a four-year life, and requires $72,000 in pretax annual operating costs. System B costs $324,000, has a six-year life, and requires $66,000 in pretax annual operating costs. Suppose LISC 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.

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

Find

EAC

  System A

??$

  System B

??$

Question 3

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,048,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,229,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $130,000 per year. The sales for each machine will be $10.1 million per year. The required return is 11 percent, and the tax rate is 30 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis.

Calculate the NPV for each machine. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

  Machine A

??$

  Machine B

??$

EAC

  Machine A

??$

  Machine B

??$

NPV

  System A

??$

  System B

??$

Explanation / Answer

Try this

NPV of A= -264,000-(81000x.66)PVIFA(8%,4)= $-441066.3

NPV of B= -372,000-(75000x.66)PVIFA(8%,6)= $-600832.54

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