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 firm’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?
