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I am incredibly stumped on these I have tried everything :( Vandalay Industries is considering the purchase of a new machine for the production of
I am incredibly stumped on these I have tried everything :(
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,170,000 and will last for 4 years. Variable costs are 34 percent of sales, and fixed costs are $171,000 per year. Machine B costs $4,350,000 and will last for 6 years. Variable costs for this machine are 32 percent of sales and fixed costs are $95,000 per year. The sales for each machine will be $8.7 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, what is the EAC for machine A? If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? Your firm is contemplating the purchase of a new $1,887,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $183,600 at the end of that time. You will be able to reduce working capital by $255,000 (this is a one-time reduction). The tax rate is 22 percent and your required return on the project is 23 percent and your pretax cost savings are $822,550 per year. a. What is the NPV of this project? b. What is the NPV if the pretax cost savings are $592,250 per year? c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting itStep by Step Solution
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