Problem 9-13 Project Evaluation (LO2)

Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $12 million; it will last for 6 years. Both systems entail $3 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 firms tax rate is 20%, and the discount rate is 14%. Either machine will be replaced at the end of its life.

a.	Calculate the equivalent annual cost of each alternative: (Do not round intermediate calculations. Enter your answers as a positive value. Enter your answers in whole dollars, not in millions.)

Quck & Dirty=

Do-It-Right=