Blooper Industries must replace its magnoosium purification
Transcribed Image Text:
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.)
b. What is the equivalent annual cost of investing in the more expensive system?
c. Which system should Blooper install?
Quick & Dirty