EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires $83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why?
A) A; The net present value is −$398,516.
B) B; The net present value is −$553,041.
C) A; The net present value is −$547,836.
D) B; The net present value is −$608,222.
E) B: The net present value is −$490,696.

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The Answer of EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires $83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why?
A) A; The net present value is −$398,516.
B) B; The net present value is −$553,041.
C) A; The net present value is −$547,836.
D) B; The net present value is −$608,222.
E) B: The net present value is −$490,696.

EDP Is Trying to Decide Between Two Different Conveyor Belt