Reference no: EM132384750

PPG Industries is considering the purchase of a new machine to produce outdoor paint. Machine A costs $3,150,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $290,000 per year. Machine B costs $5,377,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $210,000 per year. The sales for each machine will be $11.8 million per year. The required return is 10 percent, and the tax rate is 23 percent. Both machines will be depreciated on a straight-line basis to 0 over the duration of the project (machine A over 6 years; machine B - 9 years.). Both machines will be worthless at the end of the project. The company plans to replace the machine when it wears out. Based on costs, which machine should the company choose and why?