Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap...
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Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $15 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $20 million; it will last for 10 years. Both systems entail $1 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%. Either machine will be replaced at the end of its life. a. What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. Enter your answers as a positive value. Enter your answers in whole dollars, not in millions.) Equivalent annual cost b. What is the equivalent annual cost of investing in the more expensive system? Equivalent annual cost Do-It-Right 3,365 3,569 c. Which system should Blooper install? Quick & Dirty Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $15 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $20 million; it will last for 10 years. Both systems entail $1 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%. Either machine will be replaced at the end of its life. a. What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. Enter your answers as a positive value. Enter your answers in whole dollars, not in millions.) Equivalent annual cost b. What is the equivalent annual cost of investing in the more expensive system? Equivalent annual cost Do-It-Right 3,365 3,569 c. Which system should Blooper install? Quick & Dirty
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a Cheap System Cost 15000000 Operating Cost 1000 000 t... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
Posted Date:
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