Hagar Industrial Systems (HISC) is trying to decide between two different conveyor belt systems. System A costs 430 000 Norwegian kroner (NKr), has a 4-year life, and requires NKr 120 000 in pre-tax annual operating costs. System B costs NKr 540 000, has a 6-year life, and requires NKr 80 000 in pre-tax annual operating costs. Both systems are to be depreciated to zero using the straight-line method, and will have a zero salvage value at the end of their respective lives. The tax rate is 28% and the discount rate is 20%. Suppose that HISC always needs a conveyor belt system; when one wears out, it must be replaced. Which system should the firm choose?
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Hagar Industrial Systems (HISC) is trying to decide between two different conveyor belt system