Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,230,000 and will last for 6 years.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,230,000 and will last for 6 years. Variable costs are 39 percent of sales, and fixed costs are $170,000 per year. Machine B costs $4,590,000 and will last for 8 years. Variable costs for this machine are 26 percent of sales and fixed costs are $96,000 per year. The sales for each machine will be $9.18 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. |
Required: |
(a) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) |
(Click to select)$-2,819,571.12$-4,764,424$-4,310,669.33$-12,279,967.31$3,147,428.88 |
(b) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.) |
(Click to select)$-6,619,705.1$-2,273,375.54$3,693,624.46$-12,128,290.73$-7,316,516.17 |
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