Question

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,840,000 and will last for 4 years. Variable costs are 35 percent of sales, and fixed costs are $129,000 per year. Machine B costs $4,290,000 and will last for 7 years. Variable costs for this machine are 26 percent of sales and fixed costs are $127,000 per year. The sales for each machine will be $8.58 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.)
	(Click to select)$-3,529,060$-7,782,863.74$-2,455,266.28$-3,900,540$3,121,733.72

  

(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.)
	(Click to select)$-10,781,178.05$3,377,740.41$-10,706,916.79$-11,916,038.89$-2,199,259.59

Answer 1