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Comparing Mutually Exclusive Projects Hagar Industrial Systems Company (HISC) is trying to decide between...

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Accounting

Comparing Mutually Exclusive Projects

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $300,000, has a four-year life, and requires $89,000 in pre-tax annual operating costs. System B costs $400,000, has a six-year life, and requires $79,000 in pre-tax annual operating costs.

Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 7.5 percent, which system should the firm choose?

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