Question
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,280,000 and will last for six years.
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,280,000 and will last for six years. Variable costs are 38 percent of sales, and fixed costs are $420,000 per year. Machine B costs $5,546,000 and will last for nine years. Variable costs for this machine are 33 percent of sales and fixed costs are $275,000 per year. The sales for each machine will be $13.1 million per year. The required return is 12 percent, and the tax rate is 21 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. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
Which machine should the company choose? |
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