CBOE Manufacturing is trying to decide between two different conveyor belt syste

Question

CBOE Manufacturing is trying to decide between two different conveyor belt systems. System A costs $436,000, has a 4-year life, and requires $149,000 in pretax annual operating costs. System B costs $530,000, has a 6-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line 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 33 percent and the discount rate is 20 percent, the NPV for project A is $ and the NPV for project B is $ . Therefore

Explanation / Answer

I dont know what those figures in the boxes are?

But...

System A:

Initial Outlay (cash flow #0)= -$436,000

Cash flows 1-4= -$149,000

20% interest= NPV of -8,721.4506* 1.33(tax rate)= -1,092,899.5293

System B:

-$530,000

Cash flows 1-6= -$74,000

20% interest= NPV of -776,087.7486* 1.33(tax)= -$1,032,196.7056

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