Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive syste for $21 million; it will last for 6 years. Both systems entail $1 million in operating costs; both will be depreciated straig 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 t rate is 30%, and the discount rate is 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: 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? Note: 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?
Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive syste for $21 million; it will last for 6 years. Both systems entail $1 million in operating costs; both will be depreciated straig 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 t rate is 30%, and the discount rate is 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: 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? Note: 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?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
Related questions
Question
![Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap
purification system for $20 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system
for $21 million; it will last for 6 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%.
a. What is the equivalent annual cost of investing in the cheap system?
Note: 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?
Note: 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?
X Answer is complete but not entirely correct.
$
$
a. Equivalent annual cost
b. Equivalent annual cost
c. Which system should Blooper install?
4.45
4.04
Do-It-Right
millions
millions](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3a141e0c-b89e-4f9b-bb5a-a09eb529904c%2Ff2703b9d-652e-46ff-94b0-0c91477024fd%2Ffvscq6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap
purification system for $20 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system
for $21 million; it will last for 6 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%.
a. What is the equivalent annual cost of investing in the cheap system?
Note: 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?
Note: 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?
X Answer is complete but not entirely correct.
$
$
a. Equivalent annual cost
b. Equivalent annual cost
c. Which system should Blooper install?
4.45
4.04
Do-It-Right
millions
millions
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning