Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $8 million. The system will last

image text in transcribed

Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $8 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $18 million; it will last for 9 years. Both systems entail $3 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 16%. 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?

image text in transcribed
Blooper Industries must replace its magnoosium purication system. Quick & Dirty Systems sells a relatively cheap purication system for $8 million. The system will last 4 years. Do-lt-Rig ht sells a sturdier but more expensive system for $18 million: it will last for 9 years. Both systems entail $3 million in operating costs; both will be depreciated straight-line to a nal value of zero over their useful lives; neither will have any salvage value at the end of its life. The rm's tax rate is 30%. and the discount rate is 16%. 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\"?' 9 Answer is complete but not entirely correct. a. Equivalent annual cost $ 4.36 a millions b. Equivalent annual cost $ 5.41 a millions o. Which system should Blooperinstall'? Quick 8. Dirty a

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations Of Financial Management

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta

11th Canadian Edition

1259024970, 978-1259265921

More Books

Students also viewed these Finance questions

Question

What applied experiences do you have? (For Applied Programs Only)

Answered: 1 week ago