Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $335,000, has a four-year life, and requires $129,000 in pretax annual operating costs. System B costs $415,000, has a six-year life, and requires $123,000 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 24 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (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
Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $335,000, has a four-year life, and requires $129,000 in pretax annual operating costs. System B costs $415,000, has a six-year life, and requires $123,000 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 24 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (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
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:Letang Industrial Systems Company (LISC) is trying to decide between two different
conveyor belt systems. System A costs $335,000, has a four-year life, and requires
$129,000 in pretax annual operating costs. System B costs $415,000, has a six-year life,
and requires $123,000 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 24
percent and the discount rate is 9 percent.
Calculate the NPV for both conveyor belt systems. (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
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