Which one of the following statements is correct?
A. Pro forma statements must assume that no new equity is issued.
B. Pro forma statements are projections, not guarantees.
C. Pro forma statements are limited to a balance sheet and income statement.
D. Pro forma financial statements must assume that no dividends will be paid.
E. Net working capital needs are excluded from pro forma computations.
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
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.