The company plans to replace the machine

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Reference no: EM132025496

Comparing Mutually Exclusive Projects [LO4] Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,370,000 and will last for 6 years. Variable costs are 36 percent of sales, and fixed costs are $142,000 per year. Machine B costs $4,640,000 and will last for 10 years. Variable costs for this machine are 28 percent of sales and fixed costs are $113,000 per year. The sales for each machine will be $9.28 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.)

(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.)

Reference no: EM132025496

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