Question
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The Dimple-Max equipment costs $137,000, has a 4-year life, and costs $10,600 per year to
Sheep Ranch Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $137,000, has a 4-year life, and costs $10,600 per year to operate. The relevant discount rate is 9 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $10,100 at the end of the projects life. The relevant tax rate is 23 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $280,000, has a 4-year life, and requires $85,000 in pretax annual operating costs. System B costs $360,000, has a 6-year life, and requires $79,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 10 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
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