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Question 1

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $264000 has a

four-year life and requires $81000 in pretax annual operating costs. System B costs $372000 has a six-year life and requires $75000 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 $228000 has a

four-year life and requires $72000 in pretax annual operating costs. System B costs $324000 has a six-year life and requires $66000 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 $3048000 and will last for six

years. Variable costs are 40 percent of sales and fixed costs are $195000 per year. Machine B costs $5229000 and will last for nine years. Variable costs

for this machine are 35 percent of sales and fixed costs are $130000 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

??$

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