Calculate the annuity that has same present value

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Reference no: EM13809565

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,830,000 and will last for 5 years. Variable costs are 37 percent of sales, and fixed costs are $152,000 per year. Machine B costs $4,440,000 and will last for 7 years. Variable costs for this machine are 27 percent of sales and fixed costs are $122,000 per year. The sales for each machine will be $8.88 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:

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A and B? (Do not round your intermediate calculations.) HINT: In EAC problems you first need to find the NPV of the project. Then calculate the annuity (annual cost) that has the same present value as that NPV.

Reference no: EM13809565

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