Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,230,000 and will last for 6 years. Variable costs are 37 percent of sales, and fixed costs are $173,000 per year. Machine B costs $4,660,000 and will last for 8 years. Variable costs for this machine are 29 percent of sales and fixed costs are $124,000 per year. The sales for each machine will be $9.32 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.
(a) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)
$3,322,148.88
$-2,735,851.12
$-11,915,344.88
$-4,231,135.33
$-4,676,518
(b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)
$-7,038,814.3
$3,550,965.88
$-2,507,034.12
$-13,374,842.02
$-7,779,742.13