Question: GiGi Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last
GiGi Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last 6 years. Do-It-Right sells a sturdier but more expensive system for $12 million; it will last for 8 years. The cheaper system will require $1.1 million in operating costs per year which is 10% higher than the more expensive system. 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 firms tax rate is 30 percent and the discount rate is 11 percent. Which system should GiGi install
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