Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs 430,000 Norwegian kroner (NKr), has a 4-year life, and requires NKr120,000 in pre-tax annual operating costs. System B costs NKr540,000, has a 6-year life, and requires NKr80,000 in pre-tax annual operating costs. Both systems are to be depreciated using the reducing balance method of 50 per cent per annum and will have zero salvage value at the end of their life.

Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 28 per cent and the discount rate is 20 per cent, which system should the firm choose?