Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,060,000 and will last for six years.
Variable costs are 30 percent of sales, and fixed costs are $205,000 per year. Machine B costs $5,247,000 and will last for nine years. Variable costs for this machine are 25 percent and fixed costs are $140,000 per year. The sales for each machine will be $10.3 million per year.
The required return is 9 percent and the tax rate is 34 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. (A negative answer 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. (A negative answer should be 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 $