XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A...

XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A costs $6,500,000 and will last for 6 years. Variable costs are 20% of sales and fixed costs are $850,000 per year. Machine B costs $11,000,000 and will last for 10 years. Variable costs for the machine are 15% of sales and fixed costs are $1,000,000 per year. The sales for each machine will be $5,000,000 per year. The required rate of return is 10%, the tax rate is 21%, and both machines will be depreciated using straight-line with a no salvage value. Based on the information provided, the firm should:

		purchase machine A because it has a higher equivalent annual annuity
		purchase machine A because it has a higher NPV
		purchase machine B because it has a higher equivalent annual annuity
		purchase machine B because it has a higher NPV

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of...

Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of this machine will not produce ny increase in sales revenues , it will result in a reduction of labor costs by $31,000 per year. the shipping cost is is $7,000. in addition it would cost $3,000 to install this machine properly. also because this machine is extremely efficient its purchase would necessitate an increase in inventory of $25,000. this machine has an expected life...

(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for...

(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for $200,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate the machine properly, workers would have to go through a brief training session that would cost $5,000 after taxes. It would cost $5,000 to install the machine properly. Also, because this machine is extremely efficient, its purchase would necessitate an increase...

?(New project analysis?)? Garcia's Truckin' Inc. is considering the purchase of a new production machine for...

?(New project analysis?)? Garcia's Truckin' Inc. is considering the purchase of a new production machine for ?$250,000. The purchase of this machine will result in an increase in earnings before interest and taxes of ?$40,000 per year. To operate the machine? properly, workers would have to go through a brief training session that would cost ?$4,000 after taxes. It would cost ?$8,000 to install the machine properly.? Also, because this machine is extremely? efficient, its purchase would necessitate an increase...

(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for...

(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for $200,000.The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate the machine properly, workers would have to go through a brief training session that would cost $7,000 after taxes. It would cost $4,000 to install the machine properly. Also, because this machine is extremelyefficient, its purchase would necessitate an increase in inventory...

The XYZ company is considering the purchase of a new machine to replace an out of...

The XYZ company is considering the purchase of a new machine to replace an out of date machine that has a book value of $18000 and can be sold today for $2,000. The old machine is being depreciated on a straightline basis over 4 more years to a book value of $2000 at the end of the fourth year. The old machine generates annual revenues of $105000 and annual expenses of $75000. This machine requires a fixed investment of $5000...

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%...

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 $3,048,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,229,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $130,000 per year. The sales for each machine will be $10.1 million per year. The required return...

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 $3,132,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $270,000 per year. Machine B costs $5,355,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $205,000 per year. The sales for each machine will be $11.6 million per year. The required return...

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 $2,300,000 and will last for 4 years. Variable costs are 33 percent of sales, and fixed costs are $120,000 per year. Machine B costs $4,460,000 and will last for 7 years. Variable costs for this machine are 32 percent of sales and fixed costs are $130,000 per year. The sales for each machine will be $8.92 million per year. The required return...

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine...

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,072,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $215,000 per year. Machine B costs $5,265,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $150,000 per year. The sales for each machine will be $10.5 million per year. The required return...

Subjects