Purchase of new machine for the production of latex

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Reference no: EM131904034

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,280,000 and will last for 5 years. Variable costs are 34 percent of sales, and fixed costs are $134,000 per year. Machine B costs $4,600,000 and will last for 9 years. Variable costs for this machine are 26 percent of sales and fixed costs are $73,000 per year. The sales for each machine will be $9.2 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.

Required:

(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.)

$3,417,841.74 $-4,452,735 $-4,028,665 $-9,712,595.62 $-2,562,158.26

(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.)

$3,757,892.41 $-14,297,731.97 $-2,222,107.59 $-12,797,170.54 $-12,936,043.21

Reference no: EM131904034

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