Purchase of new machine for the production of latex

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Reference no: EM131886795

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,108,000 and will last for six years. Variable costs are 30 percent of sales, and fixed costs are $250,000 per year. Machine B costs $5,319,000 and will last for nine years. Variable costs for this machine are 25 percent of sales and fixed costs are $185,000 per year. The sales for each machine will be $11.2 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 EAC for each machine. (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be 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 you choose?

Machine A

Machine B

Reference no: EM131886795

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