Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,880,000 and will last for 8 years. Variable costs are 33 percent of sales, and fixed costs are $133,000 per year. Machine B costs $4,460,000 and will last for 12 years. Variable costs for this machine are 28 percent of sales and fixed costs are $100,000 per year. The sales for each machine will be $8.92 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.
Required:
(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.)
a) $-3,987,417
b) $3,607,663
c) $-3,607,663
d) $-2,269,934.75
e) $-12,109,934.38
(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.)
a) $-2,212,921.05
b) $-8,200,206.13
c) $-15,078,162.08
d) $-7,419,234.12
e) $3,585,078.95