Question
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.1 million and will last for six
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.1 million and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $315,000 per year. Machine B costs $4.8 million and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $355,000 per year. The sales for each machine will be $10 million per year. The required return is 10 percent, and the tax rate is 24 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine.
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