What is the equivalent annual cost of investing in the cheap

Reference no: EM133290619

Case: Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $12 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $13 million; it will last for 5 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 30%, and the discount rate is 12%.

Question 1: What is the equivalent annual cost of investing in the cheap system?

Question 2: What is the equivalent annual cost of investing in the more expensive system?

Reference no: EM133290619

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