Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life, and requires $78,000 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 project 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. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B NPV $381921.8 $525820 Which conveyor belt system should the firm choose? • System A System B
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life, and requires $78,000 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 project 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. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B NPV $381921.8 $525820 Which conveyor belt system should the firm choose? • System A System B
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Lang Industrial Systems Company (LISC) is trying to decide between two different
conveyor belt systems. System A costs $276,000, has a four-year life, and requires
$84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life,
and requires $78,000 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 project 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. (Negative amounts should be
indicated by a minus sign. Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
System A
System B
NPV
$381921.8
$525820
Which conveyor belt system should the firm choose?
System A
System B
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