Lang Industrial Systems Company (LISC) is trying to decide between two different

Question

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.

Explanation / Answer

EAC for A= 228000/3.1699 +(72000x.65)= $118727.343 EAC for B= 324000/4.355+(66000x.65)= $117292.79

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