Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification systemfor $15 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $20 million; it will last for 10years. Both systems entail $1 million in operating costs; both will be depreciated straight-line to a final value of zero over their usefullives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%.a. What is the equivalent annual cost of investing in the cheap system?Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions roundedto 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 roundedto 2 decimal places.c. Which system should Blooper install?a. Equivalent annual costb. Equivalent annual costc. Which system should Blooper install?millionsmillions

ParticularsQuick & Dirty system( Cheap System)Do it Right system (more expensive…

Answered: Blooper Industries must replace its…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $21 million; it will last for 6 years. Both systems entail $1 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 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: 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? 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…
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Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $12 million; it will last for 8 years. Both systems entail $1 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 14%. a. What is the equivalent annual cost of investing in the cheap system? Note: 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? 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…
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GiGi Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last 6 years. Do-It-Right sells a sturdier but more expensive system for $12 million; it will last for 8 years. The cheaper system will require $1.1 million in operating costs per year which is 10% higher than the more expensive system. 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 percent and the discount rate is 11 percent. Which system should GiGi install?
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X Company is considering the purchase of a new machine. The machine would reduce the amount of part-time labor, at a cost savings of $17,090 per year. In addition, the machine would enable the company to increase production and sales of one of its products by 2,000 units; contribution margin of this product is $5.30 per unit. The machine would cost $150,000, last for five years, and have zero salvage value at the end of its life. Assuming a discount rate of 7%, what is the net present value of buying the new machine? Submit Answer Tries 0/4 If the new machine will last for six years instead of five, what is the approximate internal rate of return of buying it? [enter your answer as .XX, so 1% would be .01] Submit Answer Tries 0/4

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