S10-23 Comparing Mutually Exclusive Projects [LO4]

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,100,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $240,000 per year. Machine B costs $5,300,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $175,000 per year. The sales for each machine will be $11 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. The company plans to replace the machine when it wears out on a perpetual basis.

Calculate the EAC for each machine. (Negative amounts should be indicated by a minus sign.Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

	EAC
Machine A	$
Machine B	$

Which machine should you choose?

	Machine A
	Machine B I know you should choose B due to it having a lower EAC but some how i calculated the EAC's wrong. For Machine A i got $-4,222,783.23 and Machine B i got $-4,150,712.13