Question

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $208,000, has a four-year life, and requires $67,000 in pretax annual operating costs. System B costs $294,000, has a six-year life, and requires $61,000 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 system is chosen, it will not be replaced when it wears out. The tax rate is 34 percent and the discount rate is 8 percent.

Calculate the NPV for both conveyor belt systems. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.)

	NPV
System A	$
System B	$

Which system should the firm choose?

System B System A

Answer 1