Purchase of new machine for production of latex

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Reference no: EM131903914

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,380,000 and will last for 6 years. Variable costs are 38 percent of sales, and fixed costs are $147,000 per year. Machine B costs $4,450,000 and will last for 9 years. Variable costs for this machine are 30 percent of sales and fixed costs are $79,000 per year. The sales for each machine will be $8.9 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.

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

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: EM131903914

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