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 $16 million; it will last for 8 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 firms tax rate is 30%, and the discount rate is 15%.

a. What is the equivalent annual cost of investing in the cheap system?

b. What is the equivalent annual cost of investing in the more expensive system?

c. Which system should Blooper install?