Question

Help Save & Exit Problem 10-27 Comparing Mutually Exclusive Projects (L04] 10 Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,140,000 and will last for six years. Variable costs are 36 percent of sales and fixed costs are $280,000 per year. Machine B costs $5,364,000 and will last for nine years. Variable costs for this machine are 31 percent of sales and fixed costs are $205,000 per year. The sales for each machine will be $11.7 million per year. The required return is 9 percent, and the tax rate is 22 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. points Skipped Calculate the EAC for each machine. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g.. 1,234,567.89.) System A System B Which machine should the company choose? Machine B O Machine A

Answer 1

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Fill Z Tu projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut Σ AutoSum : A Calibri 11 AA = = = pt Wrap Text General Ea Copy Paste B I U B- SF A Merge Merge & Center - Center Format Painter $ -% % 4:0 .00 . Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles Clear Filter Select Clipboard Font C Alignment Number Styles Cells Editing DX731 I DP DO DR DS DI DU DV DV DX DY DZ EA EB EC ED 731 732 vandelay MACHINE MACHINE 733 734 VARIABLE COSTS -4212000.00 (36%*11700000) VARIABLE COSTS -3627000.00 (31% 11700000) 735 FIXED COSTS -280000.00 FIXED COSTS -205000.00 736 DEPRECIATION -523333.33 (3140000/6] DEPRECIATION -596000.00 (5364000/9] 737 PBT -5015333.33 PBT -4428000.00 738 TAX 1103373.33 TAX 974160.00 739 NET INCOME -3911960.00 NET INCOME -3453840.00 740 DEPRECIATION 523333.33 DEPRECIATION 596000.00 741 OPERATING CASHFLOW -3388626.67 OPERATING CASHFLOW -2857840.00 742 743 NPV FOR MACHINE A = -3140000 - 3388626.67 X PIVIFA @9%, 6 YEARS NPV FOR MACHINE B = -5364000 - 2857840 XPIVIFA @9%, 9 YEARS NPV FOR MACHINE A = -3140000 - 3388626.67 X 4.485919 NPV FOR MACHINE B = -5364000 - 2857840 X 5.995247 745 NPV FOR MACHINE A= -18341103.37 NPV FOR MACHINE B = -22497456.38 746 747 EAC FOR MACHINE A = NPV/PVIFA @9%, 6 YEARS EAC FOR MACHINE B = NPV/PVIFA @9%, 9 YEARS 748 ANSWER EAC FOR MACHINE A = -18341103.37/4.485919 = -4088611.73 EAC FOR MACHINE B = -2857840/5.995247 = -3752578.13 749 750 ANSWER SELECT MACHINE B AS IT HAS LOWER EAC 751 E AC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE RATIOCASHBUDGET STats MACRS BASE CASE SENSITIILI Rea ferences BOU 120% 1 + . . . * ENG 00:37 30-10-2019 744 H

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Calibri pt General 11 B- AA = = = A E Copy Paste Format Painter Clipboard Wrap Text Merge Merge & Center - Center B I U SF $ -% % 4:0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Font Alignment Number Cells DX770 DP DO DR DS DI DU DV DV DX DY DZ EA EB EC ED I 751 752 753 754 PVIFA @9%, 6 YEARS FORMULA (1/r)*(1-(1/(1+r)^n)) (1/0.09)*(1-(1/(1+0.09)^6)) 4.485919 755 756 757 758 759 760 761 FORMULA PVIFA @9%, 9 YEARS (1/r)*(1-(1/(1+r)^n)) (1/0.09)*(1-(1/(1+0.09)19)) 5.995247 762 763 764 765 766 767 768 769 770 771 H BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE RATIOCASHBUDGET STats MACRS E AC MACRS NPV RELEVANT ferences BASE CASE SENSITIILI BOU 120% 1 Rea + DOR . * ENG 30-10-2019