This document contains information about two capital budgeting projects for a company to evaluate. The first project involves four mutually exclusive projects (A, B, C, E) differing in payback period, IRR, and NPV. Project C has the highest IRR of 20% and NPV of $25 million, so it should be accepted. The second project involves two conveyor belt systems (A and B) differing in cost, life, annual operating costs, and NPV. The NPV should be calculated for both systems to determine which should be accepted.

1. Module 5------
Week 10, 11
.
Your company has a cost of capital equal to 10%.
If the following projects are mutually exclusive, and you only
have the information that is provided, which should you accept?
A
B
C
E
Payback (years)
1
3
2
5
IRR
16%
18%
20%
15%
NPV (Millions)
$20
$55

2. $25
$80
a.
A
b.
B
c.
C
d.
B and
C
e.
E
2. Hagar Industrial Systems Company (HISC) is trying to decide
between two different conveyor belt systems. System A costs
$290,000, has a four-year life, and requires $85,000 in pretax
annual operating costs. System B costs $405,000, has a six-year
life, and requires $75,000 in pretax annual operating costs. Both
systems are to be depreciated straight-line to zero over their

3. lives and will have zero salvage value. Whichever system is
chosen, it will not be replaced when it wears out. The tax rate is
34 percent and the discount rate is 11 percent.
Calculate the NPV for both conveyor belt systems.
: