Question

Lymbo Company, Inc., must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $100,000 to install and $20,000 to maintain annually. The second costs $150,000 to install and $10,000 to maintain annually. Lymbo’s discount rate is 12%, and its marginal tax rate is 30%. Each qualifies for the 5-year MACRS schedule and has a 6-year life.

REQUIRED
A. Which system should be installed? Why?
B. If Lymbo was a not-for-profit organization that does not pay income taxes on its operations, which system should be installed?



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  • CreatedJanuary 26, 2015
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