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

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Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $3,132,000 and willlast for six years. Variable costs are 35 percent of sales, andfixed costs are $270,000 per year. Machine B costs $5,355,000 andwill last for nine years. Variable costs for this machine are 30percent of sales and fixed costs are $205,000 per year. The salesfor each machine will be $11.6 million per year. The requiredreturn is 10 percent, and the tax rate is 35 percent. Both machineswill be depreciated on a straight-line basis. The company plans toreplace the machine when it wears out on a perpetual basis.Calculate the EAC for each machine.

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All financials below are in Machine A Initial investment C0 3132000 Annual sales S 11600000 Variable cost VC 35 of S 35 x11600000 4060000 Fixed cost FC 270000 N Life of the project 6 years Annual See Answer

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Transcribed Image Text

Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $3,132,000 and willlast for six years. Variable costs are 35 percent of sales, andfixed costs are $270,000 per year. Machine B costs $5,355,000 andwill last for nine years. Variable costs for this machine are 30percent of sales and fixed costs are $205,000 per year. The salesfor each machine will be $11.6 million per year. The requiredreturn is 10 percent, and the tax rate is 35 percent. Both machineswill be depreciated on a straight-line basis. The company plans toreplace the machine when it wears out on a perpetual basis.Calculate the EAC for each machine.