Final answer:
The decision between the two conveyor belt systems can be evaluated using the net present value (NPV) method. System A has a NPV of -$90,528 and System B has a NPV of -$102,725. Neither system is financially attractive.
Step-by-step explanation:
The decision between the two conveyor belt systems can be evaluated using the net present value (NPV) method. The NPV is calculated by discounting the cash flows of each system to their present values and subtracting the initial cost. In this case, System A has an initial cost of $212,000 and annual operating costs of $68,000. System B has an initial cost of $300,000 and annual operating costs of $62,000. Both systems have a finite life and no salvage value.
To calculate the NPV, we need to discount the cash flows of each system using the discount rate of 9% and the tax rate of 22%. The cash flows include the initial cost and the annual operating costs, which are pretax. We can calculate the net cash flows for each year by subtracting the annual operating costs from the pretax cash flows. Then, we can calculate the present value of each net cash flow by discounting it using the discount rate and the tax rate. Finally, we can sum up all the present values to calculate the NPV. In this case, System A has a NPV of -$90,528 and System B has a NPV of -$102,725.
Based on the NPV analysis, neither System A nor System B is a financially attractive option. Both systems have negative NPVs, indicating that they would result in a loss for the company. Therefore, the company should consider other alternatives or negotiate better terms for the conveyor belt systems.