Relating mutually exclusive projects

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Relating Mutually Exclusive Projects.

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,030,000 and will last for 3 years. Variable costs are 37 percent of sales and fixed costs are $124,000 per year. Machine B costs $4,470,000 and will last for 5 years. Variable costs for this machine are 26 percent of sales and fixed costs are $86,000 per year. The sales for each machine will be $8,940,000 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, the EAC for machine A is $________ and the EAC for machine B is $_______. Therefore, you should choose machine__________. (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount, e.g.32.)

Reference no: EM1312725

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