CBOE Manufacturing is trying to decide between two different conveyor belt systems. System A costs $530,000, has a four-year life, and requires $141,000 in pretax annual operating costs. System B costs $720,000, has a six-year life, and requires $120,000 in pretax annual operating costs. Both systems are to be depreciated straightline to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 11 percent, which project should the firm choose?
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