Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,890,000 and will last for 8 years.
| Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,890,000 and will last for 8 years. Variable costs are 33 percent of sales, and fixed costs are $168,000 per year. Machine B costs $4,500,000 and will last for 12 years. Variable costs for this machine are 27 percent of sales and fixed costs are $124,000 per year. The sales for each machine will be $9 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. |
| Required: |
| (a) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) |
| (Click to select)$-2,311,281.69$-4,039,363.12$3,538,718.31$-12,330,517.26$-3,654,661.88 |
| (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.) |
| (Click to select)$3,660,715.08$-8,175,609.68$-2,189,284.92$-7,396,980.18$-14,917,112.74 |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
