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 6 years. Variable costs are 35 per cent of sales, and fixed costs are £170,000 per year. Machine B costs £5,100,000 and will last for 9 years. Variable costs for this machine are 30 per cent of sales, and fixed costs are £130,000 per year. The sales for each machine will be

£10 million per year. The required return is 10 per cent, and the tax rate is 35 per cent. 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?