Problem
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 35 percent, and the discount rate is 12 percent.
i. Which system should Blooper install?
ii. Briefly explain why you selected this system in the space provided below.