Reference no: EM132478281
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,096,000 and will last for six years. Variable costs are 30 percent of sales, and fixed costs are $235,000 per year. Machine B costs $5,301,000 and will last for nine years. Variable costs for this machine are 25 percent of sales and fixed costs are $170,000 per year. The sales for each machine will be $10.9 million per year. The required return is 9 percent, and the tax rate is 34 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 NPV for each machine. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
NPV Machine A $ Machine B $
Calculate the EAC for each machine. (Your answers should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
EAC Machine A $ Machine B $
Which machine should the company choose?
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