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

80.2K

Verified Solution

Question

Finance

Vandalay Industries is considering the purchase of a new machinefor the production of latex. Machine A costs $1,970,000 and willlast for 5 years. Variable costs are 36 percent of sales, and fixedcosts are $146,000 per year. Machine B costs $4,430,000 and willlast for 8 years. Variable costs for this machine are 31 percent ofsales and fixed costs are $80,000 per year. The sales for eachmachine will be $8.86 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis.
(a) If the company plans to replace the machine when it wearsout on a perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.) (b) If the company plans toreplace the machine when it wears out on a perpetual basis, what isthe EAC for machine B? (Do not round your intermediatecalculations.)

Answer & Explanation Solved by verified expert

4.0 Ratings (740 Votes)

SEE THE 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 $1,970,000 and willlast for 5 years. Variable costs are 36 percent of sales, and fixedcosts are $146,000 per year. Machine B costs $4,430,000 and willlast for 8 years. Variable costs for this machine are 31 percent ofsales and fixed costs are $80,000 per year. The sales for eachmachine will be $8.86 million per year. The required return is 10percent and the tax rate is 35 percent. Both machines will bedepreciated on a straight-line basis.(a) If the company plans to replace the machine when it wearsout on a perpetual basis, what is the EAC for machine A? (Do notround your intermediate calculations.) (b) If the company plans toreplace the machine when it wears out on a perpetual basis, what isthe EAC for machine B? (Do not round your intermediatecalculations.)