Dangerfield Industrial Systems Company (DISC) is trying to decide between two di
ID: 2651715 • Letter: D
Question
Dangerfield Industrial Systems Company (DISC) is trying to decide between two different conveyor belt systems. System A costs $430,000, has a four-year life, and requires $110,000 in pretax annual operating costs. System B costs $570,000, has a six-year life, and requires $98,000 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 project is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 11 percent, the NPV for project A is $
and the NPV for project B is $ .
Therefore, the firm should choose project . (Negative amounts should be indicated by a minus sign. Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
System A Investment 430000 Annual Cost 110000*66% 72600 After Tax Annual Depreciation 36550 PV Annuity 111843 Present Value 541843 System B Investment 570000 Annual Cost 98000*66% 64680 After Tax Annual Depreciation 32380 PV Annuity 136985 Present Value 706985
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