Question
Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.95 million and will last for six
Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.95 million and will last for six years. Variable costs are 33% of sales, and fixed costs are $2,055,961 per year. Machine B costs $5.03 million and will last for nine years. Variable costs for this machine are 21% of sales and fixed costs are $1,377,842 per year. The sales for each machine will be $10.5 million per year. The required return is 12 %, and the tax rate is 38%. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis.
Calculate the EAC for machine A.
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