Question
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,220,000 and will last for six years.
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,220,000 and will last for six years. Variable costs are 38 percent of sales, and fixed costs are $360,000 per year. Machine B costs $5,468,000 and will last for nine years. Variable costs for this machine are 33 percent of sales and fixed costs are $245,000 per year. The sales for each machine will be $12.5 million per year. The required return is 8 percent, and the tax rate is 25 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. EAC for System A: ? EAC for System B: ?
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