Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $244,000, has a four-year life, and requires $76,000 in pretax annual operating costs. System B costs $282,000, has a six-year life, and requires $70,000 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 will not be replaced when it wears out. The tax rate is 21 percent and the discount rate is 10 percent. Calculate the NPV for both conveyor belt systems. Note: A negative answer 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 Which conveyor belt system should the firm choose? O System A System B
Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $244,000, has a four-year life, and requires $76,000 in pretax annual operating costs. System B costs $282,000, has a six-year life, and requires $70,000 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 will not be replaced when it wears out. The tax rate is 21 percent and the discount rate is 10 percent. Calculate the NPV for both conveyor belt systems. Note: A negative answer 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 Which conveyor belt system should the firm choose? O 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
Problem 1PS
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Transcribed Image Text:Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $244,000, has a four-year life,
and requires $76,000 in pretax annual operating costs. System B costs $282,000, has a six-year life, and requires $70,000 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 will not be replaced when it wears out. The tax rate is 21 percent and the discount rate is 10 percent.
Calculate the NPV for both conveyor belt systems.
Note: A negative answer 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
Which conveyor belt system should the firm choose?
O System A
O System B
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