Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can someone help me with the following question? Thanks a lot A company is evaluating two different irrigation system options. An underground automatic irrigation system

Can someone help me with the following question? Thanks a lot

A company is evaluating two different irrigation system options.

An underground automatic irrigation system will cost $9.2 million to install and $80,000 pre-tax annually to operate. It will not have to be replaced for 20 years. An aboveground system will cost $6.8 million to install, but $190,000 per year to operate. The aboveground equipment has an effective operating life of nine years.

The company leases its land from the city and both systems are considered leasehold improvements; as a result, straight-line capital cost allowance is used throughout, and neither system has any salvage value. The tax rate is 39%.

Calculate the equivalent annual cost for each method if we use a 13% discount rate:

Underground system

Aboveground system

These answers are wrong by the way: 1179054.85, and 1146341.87

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance and Public Policy

Authors: Jonathan Gruber

5th edition

1464143331, 978-1464143335

More Books

Students also viewed these Finance questions