Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System...

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Hagar Industrial Systems Company (HISC) is trying to decidebetween two different conveyor belt systems. System A costs$365,000, has a 4-year life, and requires $153,000 in pretax annualoperating costs. System B costs $445,000, has a 6-year life, andrequires $147,000 in pretax annual operating costs. Both systemsare to be depreciated straight-line to zero over their lives andwill have zero salvage value. Whichever project is chosen, it willnot be replaced when it wears out. The tax rate is 25 percent andthe discount rate is 11 percent.
Calculate the NPV for both conveyor belt systems.

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3.6 Ratings (473 Votes)

NPV System A 6178019System B 9985802WORKINGSSystem ASystem BYearInitial costSavings See Answer

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Hagar Industrial Systems Company (HISC) is trying to decidebetween two different conveyor belt systems. System A costs$365,000, has a 4-year life, and requires $153,000 in pretax annualoperating costs. System B costs $445,000, has a 6-year life, andrequires $147,000 in pretax annual operating costs. Both systemsare to be depreciated straight-line to zero over their lives andwill have zero salvage value. Whichever project is chosen, it willnot be replaced when it wears out. The tax rate is 25 percent andthe discount rate is 11 percent.Calculate the NPV for both conveyor belt systems.