Eisc always needs conveyor belt system

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Reference no: EM131994374

Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $380,000, has a four-year life, and requires $105,000 in pretax annual operating costs. System B costs $490,000, has a six-year life, and requires $90,000 in pretax operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Assume the tax rate is 34% and the discount rate is 13 %.

(a) Assume that whichever project is chosen, it will not be replaced when it wears out. Which project should the firm choose?

(b) If instead, assume that EISC always needs a conveyor belt system; when one wears out, it must be replaced. Which project should the firm choose now?

Reference no: EM131994374

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