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