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Compute the Net Present Values of Projects

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Lang Industrial (LISC) must choose between two different conveyor belt systems. X costs $236,000, has a four-year life, and requires $74,000 in pretax annual operating costs. Y costs $336,000, has a six-year life, and requires $68,000 in pretax annual operating costs. In either case, the systems will be depreciated straight-line to zero over their lives and will have zero salvage value. Whether X or Y is picked, there will be no replacement after the system wears out. The tax rate is 30 percent and the discount rate is 9 percent.

Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

NPV
X $

Y $

________________________________________

Which conveyor belt system should the firm choose? X or Y?

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Solution Summary

This solution illustrates how to compute the net present values of two projects with net cash outflows, and which one to choose.

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