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

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Finance

Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $1,820,000 and willlast for 6 years. Variable costs are 34 percent of sales, and fixedcosts are $148,000 per year. Machine B costs $4,670,000 and willlast for 10 years. Variable costs for this machine are 31 percentof sales and fixed costs are $111,000 per year. The sales for eachmachine will be $9.34 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis.

Required:
(a)
If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.)
(Click toselect)$-4,067,882$3,598,941.23$-2,472,058.77$-10,766,460.39$-3,680,464.67

(b)
If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine B? (Do notround your intermediate calculations.)
(Click toselect)$-15,673,137.76$-10,459,408.03$-11,560,398.35$3,520,269.01$-2,550,730.99
Please show work or excel formulas.

Answer & Explanation Solved by verified expert

4.1 Ratings (756 Votes)

Machine A Cost of Machine 1820000 Useful Life 6 years Annual Depreciation Cost of Machine Useful Life Annual Depreciation 1820000 6 Annual Depreciation 30333333 Variable Costs 34 Sales Variable Costs 34 9340000 Variable Costs 3175600 Pretax 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 $1,820,000 and willlast for 6 years. Variable costs are 34 percent of sales, and fixedcosts are $148,000 per year. Machine B costs $4,670,000 and willlast for 10 years. Variable costs for this machine are 31 percentof sales and fixed costs are $111,000 per year. The sales for eachmachine will be $9.34 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis. Required:(a)If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.)(Click toselect)$-4,067,882$3,598,941.23$-2,472,058.77$-10,766,460.39$-3,680,464.67 (b)If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine B? (Do notround your intermediate calculations.)(Click toselect)$-15,673,137.76$-10,459,408.03$-11,560,398.35$3,520,269.01$-2,550,730.99Please show work or excel formulas.

(a)	If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.)

	(Click toselect)$-4,067,882$3,598,941.23$-2,472,058.77$-10,766,460.39$-3,680,464.67

(b)	If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine B? (Do notround your intermediate calculations.)

	(Click toselect)$-15,673,137.76$-10,459,408.03$-11,560,398.35$3,520,269.01$-2,550,730.99