Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,970,000 and will last for 7 years. Variable costs are 38 percent of sales, and fixed costs are $169,000 per year. Machine B costs $4,290,000 and will last for 9 years. Variable costs for this machine are 26 percent of sales and fixed costs are $111,000 per year. The sales for each machine will be $8.58 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.)
3041741.17
-12342701.82
-3895579.5
-4305640.5
-2535258.83
(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.)
-6031596.66
-6666501.57
-2100254.58
3476745.42
-12095416.14