Eads Industrial Systems Company (EISC)is trying to decide between two different conveyor belt systems.System A costs $427,000,has a 6-year life,and requires $115,000 in pretax annual operating costs.System B costs $502,000,has an 8-year life,and requires $79,000 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 33 percent and the discount rate is 24 percent.Which system should the firm choose and why?
A)A; The net present value is $211,516.
B)A; The net present value is -$588,792.
C)A; The net present value is -$314,216.
D)B; The net present value is $308,222.
E)B: The net present value is -$612,240.

Question

Quizplus · Accepted Answer

System A should be chosen because it has the more positive (smaller negative) net present value.

Eads Industrial Systems Company (EISC)is Trying to Decide Between Two