Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A

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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3.1 million and will last for six years. Variable costs are 35 percent of sales and fixed costs are $1.55 million per year. Machine B costs $4.9 million and will last for nine years. Variable costs for this machine are 30 percent and fixed costs are $1.8 million per year. The sales for each machine will be $9.5 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, which machine should the company choose?

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Corporate Finance Core Principles And Applications

ISBN: 9781260571127

6th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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