Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,132,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $270,000 per year. Machine B costs $5,355,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $205,000 per year. The sales for each machine will be $11.6 million per year. The required return is 10 percent, and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the NPV for each machine. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).)
NPV Machine A $
Machine B $
Calculate the EAC for each machine. (Your answers should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).)
EAC Machine A $
Machine B $
Which machine should you choose?
Machine A
Machine B