Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively...
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Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $21 million; it will last for 6 years. Both systems entail $2 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 13%.
A. What is the equivalent annual cost of investing in the cheap system? 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?
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