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 $1,930,000 and willlast for 6 years. Variable costs are 38 percent of sales, and fixedcosts are $129,000 per year. Machine B costs $4,210,000 and willlast for 10 years. Variable costs for this machine are 30 percentof sales and fixed costs are $130,000 per year. The sales for eachmachine will be $8.42 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)$-3,781,956.33$-2,494,148.91$-10,862,668.73$-4,180,057$2,978,851.09

(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.)

Answer & Explanation Solved by verified expert

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Machine A Cost of Machine 1930000 Useful Life 6 years Annual Depreciation Cost of Machine Useful Life Annual Depreciation 1930000 6 Annual Depreciation 32166667 Variable Costs 38 Sales Variable Costs 38 8420000 Variable Costs 3199600 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 $1,930,000 and willlast for 6 years. Variable costs are 38 percent of sales, and fixedcosts are $129,000 per year. Machine B costs $4,210,000 and willlast for 10 years. Variable costs for this machine are 30 percentof sales and fixed costs are $130,000 per year. The sales for eachmachine will be $8.42 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis. Required:(a)If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.)(Click toselect)$-3,781,956.33$-2,494,148.91$-10,862,668.73$-4,180,057$2,978,851.09 (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.)

(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)$-3,781,956.33$-2,494,148.91$-10,862,668.73$-4,180,057$2,978,851.09