replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification syst 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 usefu 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 rounde 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 rounde to 2 decimal places. c. Which system should Blooper install?
replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification syst 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 usefu 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 rounde 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 rounde 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
Vijay
![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%.
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?
a. Equivalent annual cost
b. Equivalent annual cost
c. Which system should Blooper install?
millions
millions](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7c6eb340-0e01-43fa-943f-6fcc6a749b5d%2F66c3ed7f-5a94-4714-9ab0-ddcad23a841e%2Fnrcjhq_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 $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%.
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?
a. Equivalent annual cost
b. Equivalent annual cost
c. Which system should Blooper install?
millions
millions
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