Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purif
Posted: Fri Jul 01, 2022 7:46 am
Blooper Industries must replace its magnoosium purificationsystem. Quick & Dirty Systems sells a relatively cheappurification system for $10 million. The system will last 5 years.Do-It-Right sells a sturdier but more expensive system for $12million; it will last for 8 years. Both systems entail $1 millionin operating costs; both will be depreciated straight-line to afinal value of zero over their useful lives; neither will have anysalvage value at the end of its life. The firm’s tax rate is 30%,and the discount rate is 14%. Either machine will be replaced atthe end of its life.
a. What is the equivalent annual cost ofinvesting in the cheap system? (Do not roundintermediate calculations. Enter your answer as a positive value.Enter your answer in millions rounded to 2 decimalplaces.)
b. What is the equivalent annual cost ofinvesting in the more expensive system? (Do not roundintermediate calculations. Enter your answer as a positive value.Enter your answer in millions rounded to 2 decimalplaces.)
c. Which system should Blooperinstall?
a. What is the equivalent annual cost ofinvesting in the cheap system? (Do not roundintermediate calculations. Enter your answer as a positive value.Enter your answer in millions rounded to 2 decimalplaces.)
b. What is the equivalent annual cost ofinvesting in the more expensive system? (Do not roundintermediate calculations. Enter your answer as a positive value.Enter your answer in millions rounded to 2 decimalplaces.)
c. Which system should Blooperinstall?