Question

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,250,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $390,000 per year. Machine B costs $5,507,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $260,000 per year. The sales for each machine will be $12.8 million per year. The required return is 10 percent, and the tax rate is 23 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