In: Finance
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,260,000 and will last for six years. Variable costs are 36 percent of sales and fixed costs are $400,000 per year. Machine B costs $5,520,000 and will last for nine years. Variable costs for this machine are 31 percent of sales and fixed costs are $265,000 per year. The sales for each machine will be $12.9 million per year. The required return is 11 percent and the tax rate is 24 percent. 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 EAC for each machine.