Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification...

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Blooper Industries must replace its magnoosium purificationsystem. Quick & Dirty Systems sells a relatively cheappurification system for $12 million. The system will last 6 years.Do-It-Right sells a sturdier but more expensive system for $20million; it will last for 8 years. Both systems entail $1 millionin operating costs; both will be depreciated straight-line to afinal value of zero over their useful lives; neither will have anysalvage value at the end of its life. The firmâ€™s tax rate is 30%,and the discount rate is 13%. Either machine will be replaced atthe end of its life.
a. What is the equivalent annual cost of investing in the cheapsystem? (Do not round intermediate calculations. Enter your answersas a positive value. Enter your answers in whole dollars, not inmillions.)
b. What is the equivalent annual cost of investing in the moreexpensive system?

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Solution A The equivalent annual cost of investing in the cheap system 2401839 Working Notes The cheap system is Quick Dirty systems The equivalent annual cost of investing in the cheap system Quick Dirty systems 2401839 Quick Dirty systems cheap system a Operating costs 1000000 b Investment 12000000 c Project life 6 year dbc Annual depreciation 2000000 investmentproject life ed x 30 tax shield on See Answer

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