Question

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,310,000 and will last for six years. Variable costs are 39 percent of sales and fixed costs are $450,000 per year. Machine B costs $5,585,000 and will last for nine years. Variable costs for this machine are 34 percent of sales and fixed costs are $290,000 per year. The sales for each machine will be $13.4 million per year. The required return is 9 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. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Answer 1

Solution :

The EAC of Machine A = - $ 4,919,224.48

The EAC of Machine B = - $ 4,465,597.98

Please find the attached screenshots of the excel sheet containing the detailed calculation for the solution.