Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $320,000, has a 4-year life, and requires $117,000 in pretax annual operating costs. System B costs $400,000, has a 6-year life, and requires $111,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 21 percent and the discount rate is 10 percent.

Calculate the EAC for both conveyor belt systems. System A & B

Which conveyor belt system should the firm choose? System B or System A