Lymbo Company, Inc. must install safety devices throughout its plant or it will lose its insurance coverage.

Question:

Lymbo Company, Inc. 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 5-year income tax life and a 15-year useful life. Lymbo's is 12%, its marginal tax rate is 30%, and it uses straight-line amortization (ignore the half-year convention).
REQUIRED
A. Which system should be installed? Why?
B. If Lymbo were a not-for-profit organization that does not pay income taxes on its operations, which system would be installed?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...