Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A
Question:
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,950,000 and will last for 6 years. Variable costs are 37 percent of sales, and fixed costs are $146,000 per year. Machine B costs $4,220,000 and will last for 9 years. Variable costs for this machine are 29 percent of sales and fixed costs are $79,000 per year. The sales for each machine will be $8.44 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. |
Required: |
(a) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) |
(b) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.) |