Answer:
System A = $535,733
System B = $593,130
Explanation:
The NPV for Hagar Industrial Systems Company (HISC) is as follows,
For system A:
Annual depreciation = $275,000 / 4 years = $68,750
Pretax annual operating cost = $81,000
Present value of total cost = - $275,000 - [$81,000 * (1 - 22%) + $68,750 * 22%] * PVIFA 9% 4 years.
Present value of total cost = - $275,000 - ($63,180 + $15,125) * 3.329720
Present value of system A = - $275,000 - $260,733
Present value of system A = - $535,733
For system B:
Annual depreciation = $355,000 / 6 years = $59,166
Pretax annual operating cost = $75,000
Present value of total cost = - $355,000 - [$75,000 * (1 - 22%) + $59,166 * 22%] * PVIFA 9% 4 years.
Present value of total cost = - $355,000 - ($58,500 + $13,016) * 3.329720
Present value of system B = - $355,000 - $238,130
Present value of system B = - $593,130
