EDP Is Trying to Decide Between Two Different Conveyor Belt

question 67

Multiple Choice

EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires $83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why?

• A) A; The net present value is −$398,516.
• B) B; The net present value is −$553,041.
• C) A; The net present value is −$547,836.
• D) B; The net present value is −$608,222.
• E) B: The net present value is −$490,696.

Comprehend the process and necessity of forming loan syndicates for large corporate loans.

Analyze inventory investment changes over a period.

Grasp the criterion for borrowing money for investment purposes.

Identify different methods of providing savings to corporations.

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Definitions:

Inflation Rate

The growth rate of the overall cost level for goods and services, undermining the efficacy of monetary resources.

Spot Rate

The current price in the marketplace at which a given asset—such as a currency, commodity, or security—can be bought or sold for immediate delivery.

Forward Rate

The predetermined price for a transaction that will occur at a specific future date, used in the context of currency and interest rate markets.

Interest Rate Parity

A theory that suggests the difference in interest rates between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.