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

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Vandelay Industries isconsidering the purchase of a new machine for the production oflatex. Machine A costs $3,320,000 and will last for six years.Variable costs are 38 percent of sales, and fixed costs are$460,000 per year. Machine B costs $5,598,000 and will last fornine years. Variable costs for this machine are 33 percent of salesand fixed costs are $295,000 per year. The sales for each machinewill be $13.5 million per year. The required return is 8 percent,and the tax rate is 25 percent. Both machines will be depreciatedon a straight-line basis. The company plans to replace the machinewhen it wears out on a perpetual basis.
Calculate the EAC foreach machine.

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Machine ATime line0123456Cost of new machine3320000Initial Investment outlay332000010000Sales135000001350000013500000135000001350000013500000ProfitsSalesvariable cost972000097200009720000972000097200009720000Fixed cost460000460000460000460000460000460000DepreciationCost See Answer

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Vandelay Industries isconsidering the purchase of a new machine for the production oflatex. Machine A costs $3,320,000 and will last for six years.Variable costs are 38 percent of sales, and fixed costs are$460,000 per year. Machine B costs $5,598,000 and will last fornine years. Variable costs for this machine are 33 percent of salesand fixed costs are $295,000 per year. The sales for each machinewill be $13.5 million per year. The required return is 8 percent,and the tax rate is 25 percent. Both machines will be depreciatedon a straight-line basis. The company plans to replace the machinewhen it wears out on a perpetual basis.Calculate the EAC foreach machine.