Company plans to replace the machine

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Reference no: EM132007498

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,230,000 and will last for 6 years. Variable costs are 37 percent of sales, and fixed costs are $173,000 per year. Machine B costs $4,660,000 and will last for 8 years. Variable costs for this machine are 29 percent of sales and fixed costs are $124,000 per year. The sales for each machine will be $9.32 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.

(a) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)

$3,322,148.88

$-2,735,851.12

$-11,915,344.88

$-4,231,135.33

$-4,676,518

(b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)

$-7,038,814.3

$3,550,965.88

$-2,507,034.12

$-13,374,842.02

$-7,779,742.13

Reference no: EM132007498

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