Purchase of new machine for the production of latex

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Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.89 million and will last for six years. Variable costs are 33% of sales, and fixed costs are $1981139 per year. Machine B costs $5.1 million and will last for nine years. Variable costs for this machine are 22% of sales and fixed costs are $1427870 per year. The sales for each machine will be $10.9 million per year. The required return is 10 %, and the tax rate is 38%. 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 NPV for machine A.

Reference no: EM131980869

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