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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 $2,280,000 and will last for 7 years. Variable costs are 36 percent of sales, and fixed costs are $174,000 per year. Machine B costs $4,720,000 and will last for 9 years. Variable costs for this machine are 28 percent of sales and fixed costs are $86,000 per year. The sales for each machine will be $9.44 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.)

1) -2,676,384.54 2) -13,029,760.85 3) -4,712,463 4) -4,263, 657 5) 3,459,615.46

(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.) rev: 09_18_2012

1) -7,493,008.13 2) -6,779,388.31 3) -2,410,007.79 4) -13,879,292.25 5) 3,725,992.21

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