Hildale Hotels Has Been Told That It Must Install a Fire

Hildale Hotels has been told that it must install a fire sprinkler system. System A would cost $400,000 immediately, but it would not add to annual operating costs. System B costs only $250,000, but it would add $25,000 a year to operating costs. Both systems have a useful life of 10 years. The hotel's hurdle rate is 12%. Given the data provided, with a present value of an annuity for 10 years at 12% of 5.650 and a present value of $1 for 10 years at 12% of 0.322, the company should:

A) Select System A
B) Select System B
C) Be indifferent about the two alternatives
D) Try to obtain additional data; as is, the answer cannot be determined