Comparing Mutually Exclusive Projects Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,900,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are

$195,000 per year. Machine B costs $5,700,000 and will last for nine years. Variable costs for this machine are 30 percent and fixed costs are $165,000 per year. The sales for each machine will be $12 million per year. The required return is 10 percent and the tax rate is 35 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 you choose?