Mutually exclusive projects


Question: Vandalay Industries is considering the purchase of a brand new machine for the manufacture of latex. Machine a costs dollar 2,030,000 & will last for three years. Variable costs are 37% of sales & fixed costs are dollar 124,000 per year. Machine B costs dollar 4,470,000 & will last for five years. Variable costs for this machine are 26% of sales & fixed costs are dollar 86,000 per year. The sales for each machine will be dollar 8,940,000 per year. The required return is 10% & the tax rate is 35%. Both machines will be depreciated on a straight line basis. If the company plans to replace the machine when it wears out on a perpetual basis, the EAC for machine A is dollar ________ & the EAC for machine B is dollar _______. Therefore, you should choose machine__________. (Negative amount should be indicated by a minus sign. [Give your answer to the nearest whole dollar amount]

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Finance Basics: Mutually exclusive projects
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