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Which system would be installed

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Question - Lymbo Company, must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $100 000 to install and $20 000 to maintain annually. The second costs $150 000 to install and $10 000 to maintain annually. Each has a five-year income tax life and a 15-year useful life. Lymbo's discount rate is 12 per cent, its marginal tax rate is 30 per cent and it uses straight-line depreciation.

Required -

(a) Which system should be installed? Why?

(b) If Lymbo were a not-for-profit organisation that does not pay income taxes on its operations, which system would be installed?

Reference no: EM132768840

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