Calculate the equivalent annual cost of each alternative

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Blooper Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $20 million; it will last for 8 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 firm’s tax rate is 35%, and the discount rate is 10%. Either machine will be replaced at the end of its life.

a. Calculate the equivalent annual cost of each alternative: (Do not round intermediate calculations. Enter your answers as a positive value. Enter your answers in whole dollars, not in millions.)

Reference no: EM13878744

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