Question

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,080,000 and will last for 4 years. Variable costs are 35 percent of sales, and fixed costs are $142,000 per year. Machine B costs $4,780,000 and will last for 6 years. Variable costs for this machine are 28 percent of sales and fixed costs are $88,000 per year. The sales for each machine will be $9.56 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.)
	$-8,689,803.43 $-3,956,940 $-2,741,379.27 $3,472,620.73 $-4,373,460

  

(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.)
	$-11,392,534.25 $-9,019,583.22 $3,598,190.06 $-8,160,575.3 $-2,615,809.94

Answer 1