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Problem:

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $424,000, has a 4-year life, and requires $147,000 in pretax annual operating costs. System B costs $551,000, has a 6-year life, and requires $81,000 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. Assume the tax rate is 30 percent and the discount rate is 23 percent.

Required:

Question: Compute the NPV for both the systems. Which system should the firm choose?

Note: Please answer in proper manner and show all computations

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168897

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