Manufacturing Company is planning to modernize one of its distribution centres located outside the city. Two options to move goods in the distribution centre have been under consideration: a conveyor system and forklift trucks. The firm expects that the distribution centre will be operational for the next 12 years, and then it will be converted into a factory outlet. The conveyor system would last ten years whereas the forklift trucks would last only eight years. The two options will be designed differently but will have identical capacities and will do exactly the same job. The expected cash flows for the two options, including maintenance costs, salvage values, and tax effects are as in Table A.

Since each option has a shorter life than the required service period (12 years), Company needs to make an explicit assumption of how the service requirement is to be met. If the company goes with the conveyor system, it will spend $26 000 to overhaul the system to extend its service life beyond ten years. The expected salvage value of the system at the end of the required service period (12 years) will be $14 000. The annual operating and maintenance costs will be $21 000.

If the company goes with the lift truck option, the company will consider leasing a comparable lift truck that has an annual lease payment of $16 000, payable at the beginning of each year, with an annual operating costs of $23 000 for the remaining required service period.

Table A: Cash Flow

n	Conveyor System	Lift Trucks
0	-$76 000	-$48 000
1	-$21 000	-$23 000
2	-$21 000	-$23 000
3	-$21 000	-$23 000
4	-$21 000	-$23 000
5	-$21 000	-$23 000
6	-$21 000	-$23 000
7	-$21 000	-$23 000
8	-$21 000	-$23 000 + $12 000
9	-$21 000
10	-$21 000 + $13 000

Assuming that the firms MARR is 15%.

(a)	Compute cash flows for both models.

(b)	Compute the NPW for each model. Which option should the firm select?