If the company plans to replace machine when it wears out

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Reference no: EM13476778

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,980,000 and will last for 4 years. Variable costs are 33 percent of sales, and fixed costs are $130,000 per year. Machine B costs $4,790,000 and will last for 7 years. Variable costs for this machine are 26 percent of sales and fixed costs are $120,000 per year. The sales for each machine will be $9.58 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?

(b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?

Reference no: EM13476778

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