Question
In: Finance
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine...
Vandalay Industries is considering the purchase of a new machine for the production of latex.
Machine A costs $2,900,000 and will last for six years. Variable costs are 35% of sales and fixed
costs are $170,000 per year. Machine B costs $5,100,000 and will last for nine years. Variable
costs for this machine are 30% of sales and fixed costs are $130,000 per year. The sales for each
machine will be $10 million per year. The required return is 10% and the tax rate is 35%. Both
machines will be depreciated straight-line over their lifetimes.
a.
What are the equivalent annual costs of each machine?
b. Which machine should Vandalay Industries select?
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jeff jeffy answered 2 years agoRelated Solutions
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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine...
Vandalay Industries is considering the purchase of a new machine
for the production of latex. Machine A costs $2,900,000 and will
last for six years. Variable costs are 35% of sales and fixed costs
are $170,000 per year. Machine B costs $5,100,000 and will last for
nine years. Variable costs for this machine are 30% of sales and
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