Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $275,000, has a 4-year life, and requires $81,000 in pretax annual operating costs. System B costs $355,000, has a 6-year life, and requires $75,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 9 percent.

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $275,000, has a 4-year life, and requires $81,000 in pretax annual operating costs. System B costs $355,000, has a 6-year life, and requires $75,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 9 percent.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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