Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,170,000 and will last for six years.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,170,000 and will last for six years. Variable costs are 39 percent of sales, and fixed costs are $310,000 per year. Machine B costs $5,403,000 and will last for nine years. Variable costs for this machine are 34 percent of sales and fixed costs are $220,000 per year. The sales for each machine will be $12 million per year. The required return is 12 percent, and the tax rate is 25 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 enter your answers in dollars not millions of dollars, round your answers to 2 decimal places. (e.g., 1,234,567.89) System A System B
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started