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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,190,000 and will last for 4 years. Variable costs are 37 percent of sales, and fixed costs are $173,000 per year. Machine B costs $4,430,000 and will last for 8 years. Variable costs for this machine are 31 percent of sales and fixed costs are $117,000 per year. The sales for each machine will be $8.86 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. |
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If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? |
If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?
