Hagar Industrial Systems Company (HISC) is trying to decide between two differen
ID: 2735894 • Letter: H
Question
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $264,000, has a four-year life, and requires $81,000 in pretax annual operating costs. System B costs $372,000, has a six-year life, and requires $75,000 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.)
Explanation / Answer
Ans)
System B has aceptable because it has least annual cost
Project Initial Investment Yearly post tax operating cost PV Factor present value NPV Equitable Annual Cost System A 264000 53460 3.3121 177065 441065 133168 System B 372000 49500 4.6229 228834 600834 129969Related Questions
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