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

60.1K

Verified Solution

Question

Finance

Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $2,400,000 and willlast for 5 years. Variable costs are 33 percent of sales, and fixedcosts are $180,000 per year. Machine B costs $4,450,000 and willlast for 7 years. Variable costs for this machine are 26 percent ofsales and fixed costs are $91,000 per year. The sales for eachmachine will be $8.9 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)$-4,045,147.5$-9,443,471.36$-2,491,163.95$3,293,836.05$-4,470,952.5

(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

4.4 Ratings (1075 Votes)

a Time line 0 1 2 3 4 5 Cost of new machine 2400000 Initial Investment outlay 2400000 Sales 8900000 8900000 8900000 8900000 8900000 Profits Salesvariable cost 5963000 5963000 5963000 5963000 5963000 Fixed cost 180000 180000 180000 180000 180000 Depreciation Cost of equipmentno of years 480000 480000 480000 480000 480000 Pretax cash flows 5303000 5303000 5303000 5303000 5303000 taxes Pretax cash flows1tax 3446950 3446950 3446950 3446950 3446950 Depreciation 480000 480000 480000 480000 480000 after tax operating cash flow 3926950 3926950 3926950 3926950 3926950 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $2,400,000 and willlast for 5 years. Variable costs are 33 percent of sales, and fixedcosts are $180,000 per year. Machine B costs $4,450,000 and willlast for 7 years. Variable costs for this machine are 26 percent ofsales and fixed costs are $91,000 per year. The sales for eachmachine will be $8.9 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis. Required:(a)If the company plans to replace the machine when it wears out ona perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.)(Click toselect)$-4,045,147.5$-9,443,471.36$-2,491,163.95$3,293,836.05$-4,470,952.5 (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)$-4,045,147.5$-9,443,471.36$-2,491,163.95$3,293,836.05$-4,470,952.5

(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.)