Question
Could I get help solving these 2 problems? 1. Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System
Could I get help solving these 2 problems?
1. Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $268,000, has a four-year life, and requires $82,000 in pretax annual operating costs. System B costs $378,000, has a six-year life, and requires $76,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. HISC 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.
What is the EAC for each project using aftertax cash flows? System A EAC $__ System B EAC $__
2. Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,060,000 in annual sales, with costs of $759,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $270,000 at the end of the project. If the tax rate is 35 percent and the required return is 13 percent, what is the projects Year 1 net cash flow? Year 2? Year 3? (Use MACRS) Year 0: Year 1: Year 2: Year 3: Also, what is the NPV:
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