(Equivalent annual cost calculation)The Templeton Manufacturing and Distribution Company of Tacoma, Washington, is contemplating the purchase of a new conveyor belt system for one of its regional distribution facilities. Both alternatives will accomplish the same task but the Eclipse Model is substantially more expensive than the Sabre Model and will not have to be replaced for 10 years, whereas the cheaper model will need to be replaced in just 5 years. The costs of purchasing the two systems and the costs of operating them annually over their expected lives is provided below:

a.Templeton typically evaluates investments in plant improvements using a required rate of return of 10 percent. What are the NPVs for the two systems?

b.Calculate the equivalent annual costs for the two systems.

c.Based on your analysis of the two systems using both their NPV and EAC, which system do you recommend the company pick? Why?

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A. The NPV for Eclipse at a discount rate of 10% is $nothing. (Round to the nearest dollar.)

The NPV for Sabre at a discount rate of 10% is $nothing. (Round to the nearest dollar.)

B.Eclipse's equivalent annual cost (EAC) at a discount rate of 10% is $nothing. (Round to the nearest dollar.)

Sabre's equivalent annual cost (EAC) at a discount rate of 10% is $nothing. (Round to the nearest dollar.)

MULTIPLE CHOICE FOR C.

C.Which of the alternatives do you think Templeton should select? Why? (Select the best choice below.)

A. Sabre's model should be selected because its equivalent annual cost is less per year than Eclipse's equivalent annual cost.

B. Eclipse's model should be selected because its equivalent annual cost is less per year than Sabre's equivalent annual cost.

C. Eclipse's model should be selected because it has the highest NPV.

D. Sabre's model should be selected because it has the highest NPV.

dollar.) i Data Table - X r.) elow.) clipse's equivalen Sabre's equivalen Year Eclipse Sabre 0 $(1,450,000) $(700,000) 1 (22,000) (51,000) 2 (33,000) (51,000) 3 (33,000) (62,000) 4 (33,000) (62,000) 5 (42,000) (82,000) 6 (42,000) 7 (42,000) 8 (42,000) 9 (42,000) 10 (42,000) (Click on the icon in order to copy its contents into a spreadsheet.) Print Done