Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,920,000 and will last for 4 years. Variable costs are 38 percent of sales, and fixed costs are $144,000 per year. Machine B costs $4,470,000 and will last for 6 years. Variable costs for this machine are 28 percent of sales and fixed costs are $121,000 per year. The sales for each machine will be $8.94 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.)
(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.)