Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,350,000 and will last for 5 years.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,350,000 and will last for 5 years. Variable costs are 39 percent of sales, and fixed costs are $122,000 per year. Machine B costs $4,570,000 and will last for 7 years. Variable costs for this machine are 31 percent of sales and fixed costs are $85,000 per year. The sales for each machine will be $9.14 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)
(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)
Note: I think the answer is supposed to be negative for both?
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