Eads Industrial Systems Company (EISC) Is Trying to Decide Between

question 4

Multiple Choice

Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $427,000, has a 6-year life, and requires $112,000 in pretax annual operating costs. System B costs $517,000, has an 8-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 a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 33 percent and the discount rate is 24 percent. Which system should the firm choose and why?

• A)A; The net present value is $211,516.
• B)A; The net present value is -$582,720.
• C)A; The net present value is -$314,216.
• D)B; The net present value is $308,222.
• E)B: The net present value is -$625,123.

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Definitions:

Spending Variance

The difference between the actual and planned or budgeted amount of spending, indicating over or under spending.

Client-Visits

The number of times clients or customers physically or virtually engage with a business, often used to measure engagement or service levels.

Wages and Salaries

Monetary compensation paid to employees for their labor, with wages typically referring to hourly pay and salaries to annual earnings.

Planning Budget

An initial budget prepared based on estimates of what revenues and costs should be before a period begins, often used for setting goals and objectives.