Question

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine...

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,114,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $255,000 per year. Machine B costs $5,328,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $190,000 per year. The sales for each machine will be $11.3 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. 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. (Your answers should be a negative value and 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 $


Which machine should the company choose?
  

  • Machine A

  • Machine B

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Home nert Page Layout Formulas Data Review View dd-Ins Σ AutoSum Calibri ー E ゴWrap Text General Copy Paste Sort &Find & チFormat Painter B l U. ーータ.Δ. -=- 還便困Merge & Center. $,%,,Ma conditional Format Cell Insert Delete Format Formatting, as Table w styles. Styles 2 ClearFe Select Edting ▼ ㆆ ▼ Clipboard Font DV185 IX) vandalay I03 DT DU DV 113AM IISE 167 168 169 170 MACHINE MACHINE VARIABLE COSTS FIXED COSTS DEPRECIATION PBT TAX NET INCOME DEPRECIATION OPERATING CASHFLOW 3955000.00 (35%+11300000) VARIABLE COSTS FIXED COSTS DEPRECIATION PBT TAX NET INCOME DEPRECIATION OPERATING CASHFLOW 3390000.00 (30%*11300000) 255000.00 190000.00 519000.00 (3114000/6) 592000.00 (5328000/9) 172 173 174 175 176 -4729000.00 1655150.00 3073850.00 519000.00 2554850.00 4172000.00 1460200.00 2711800.00 592000.00 -2119800.00 178 179 N PV FOR MACHINE A =-31 14000-2554850 X PIVI FA @ 10%, 6 YEARS NPV FOR MACHINE A 3114000 2554850 X 4.3553 NPV FOR MACHINE A- NPV FOR MACHINE B-.5328000-2 119800 XPIVIFA @10%, 9 YEARS NPV FOR MACHINE B -5328000 2119800 X 5.7590 NPV FOR MACHINE B17535928.2 14241138.21 181 182 183 ANSWER EAC FOR MACHINE A -14241138.21/4.3553 -3269840.93EAC 184 185 ANSWERSELECT MACHINE B AS IT HAS LOWER EAC HH externa EAC FOR MACHINE A-N PV/PVI FA @ 10%, 6 YEARS EAC FOR MACHINE B-NPV/PVIFA @ 10%. 9 YEARS FOR MACHINE B--17535928.2/5.759 -3044960.62 l rate MIRR NPV IRR REPLACEMENT S HPR GMAM EAC MACRS LEASE RATIOCASHBUDGET wacc BOND EPS EBITREPLACEMENT STats NPV BETA LEVERED0 130%

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