Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,900,000 and will last for 7 years.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,900,000 and will last for 7 years. Variable costs are 36 percent of sales, and fixed costs are $168,000 per year. Machine B costs $4,260,000 and will last for 10 years. Variable costs for this machine are 30 percent of sales and fixed costs are $90,000 per year. The sales for each machine will be $8.52 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)$3,139,849.55$-11,675,200.78$-4,103,274$-2,398,150.45$-3,712,486 |
(b) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.) |
(Click to select)$-6,939,643.82$-2,264,095.38$-7,670,132.65$-13,911,886.01$3,273,904.62 |
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