Question
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,280,000 and will last for 4 years.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,280,000 and will last for 4 years. Variable costs are 38 percent of sales, and fixed costs are $134,000 per year. Machine B costs $4,740,000 and will last for 6 years. Variable costs for this machine are 27 percent of sales and fixed costs are $92,000 per year. The sales for each machine will be $9.48 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. |
Required: |
(a) | If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) |
(Click to select)$-2,948,433.43$3,213,566.57$-4,734,618$-9,346,137.26$-4,283,702 |
(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)$-7,952,724.19$3,626,621.02$-8,789,853.05$-11,042,236.44$-2,535,378.98 |
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