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

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Finance

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,200,000 and will last for 5 years. Variable costs are 37 percent of sales, and fixed costs are $137,000 per year. Machine B costs $4,760,000 and will last for 8 years. Variable costs for this machine are 29 percent of sales and fixed costs are $102,000 per year. The sales for each machine will be $9.52 million per year. The required return is 10 percent and the tax rate is 21 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?

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?

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