Question

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,310,000 and will last for 7 years. Variable costs are 36 percent of sales, and fixed costs are $138,000 per year. Machine B costs $4,800,000 and will last for 11 years. Variable costs for this machine are 28 percent of sales and fixed costs are $103,000 per year. The sales for each machine will be $9.6 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.

)	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.)
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Answer 1