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 4 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 4 years. Variable costs are 36 percent of sales, and fixed costs are $126,000 per year. Machine B costs $4,270,000 and will last for 8 years. Variable costs for this machine are 30 percent of sales and fixed costs are $71,000 per year. The sales for each machine will be $8.54 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. |
| Required: |
| (a) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) |
| (Click to select)$-8,256,208.87$2,946,407.15$-2,604,592.85$-3,970,059.5$-4,387,960.5 |
| (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)$3,225,976.54$-12,403,828.54$-$-2,325,023.46$- |
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