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 willnotbe 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.

NPV

System A$

System B$

Which system should the firm choose?

System A

System B