Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,300,000 and will last for 3 years.
| Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,300,000 and will last for 3 years. Variable costs are 39 percent of sales, and fixed costs are $124,000 per year. Machine B costs $4,650,000 and will last for 6 years. Variable costs for this machine are 31 percent of sales and fixed costs are $82,000 per year. The sales for each machine will be $9.3 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)$2,950,319.28$-4,246,325.83$-4,693,307.5$-7,696,012.9$-3,094,680.72 |
| (b) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.) |
| (Click to select)$-2,723,674.32$3,321,325.68$-11,862,311.72$-$- |
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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
