Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively chea or $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $21 million; Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero ove either will have any salvage value at the end of its life. The firm's tax rate is 20%, and the discount rate is 15%. Ei eplaced at the end of its life. . What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. as a positive value. Enter your answer in millions rounded to 2 decimal places.) b. What is the equivalent annual cost of investing in the more expensive system? (Do not round intermediate call answer as a positive value. Enter your answer in millions rounded to 2 decimal places.) C. Which system should Blooper install?
Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively chea or $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $21 million; Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero ove either will have any salvage value at the end of its life. The firm's tax rate is 20%, and the discount rate is 15%. Ei eplaced at the end of its life. . What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. as a positive value. Enter your answer in millions rounded to 2 decimal places.) b. What is the equivalent annual cost of investing in the more expensive system? (Do not round intermediate call answer as a positive value. Enter your answer in millions rounded to 2 decimal places.) C. Which system should Blooper install?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system
for $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $21 million; it will last for 6 years.
Both systems entail $2 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 20%, and the discount rate is 15%. 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 answer
as a positive value. Enter your answer in millions rounded to 2 decimal places.)
b. What is the equivalent annual cost of investing in the more expensive system? (Do not round intermediate calculations. Enter your
answer as a positive value. Enter your answer in millions rounded to 2 decimal places.)
c. Which system should Blooper install?
Answer is complete but not entirely correct.
a.
Equivalent annual cost
$
4.45
millions
ناف
b.
Equivalent annual cost
$
4.27 millions
Which system should Blooper install?
Quick & Dirty
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