Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3.08 million and will last for six years. Variable costs are 32% of sales, and fixed costs are $1,940,832 per year. Machine B costs $5.09 million and will last for nine years. Variable costs for this machine are 22% of sales and fixed costs are $1,393,004 per year. The sales for each machine will be $9.7 million per year. The required return is 7 %, and the tax rate is 38%. 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 EAC for machine A. (Round answer to 2 decimal places. Do not round intermediate calculations)

Answer 1

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©vo a 1x 2 ENG - = W 06:53 29-03-2020 ... X DU613 V - X DO for DPDQDR DS DT DU DV DN DX DYDZ A 612 613 614 615 616 renegade 617 add 618 add 619 MACHINE machine A -3104000.00 (9700000 x 32%] -1940832.00 -513333.33 (3080000/6) -5558165.33 2112102.83 -3446062.51 513333.33 -2932729.17 VARIABLE COSTS FIXED COSTS DEPRECIATION PBT TAX NET INCOME DEPRECIATION OPERATING CASHFLOW 620 621 622 623 less add 624 625 626 NPV FOR MACHINE A = -3080000 - 2932729.17 X PIVIFA @7%, 6 YEARS NPV FOR MACHINE A = -3080000 - 2932729.17 X 4.7665397 NPV FOR MACHINE A = -17058969.92 627 628 629 EAC FOR MACHINE A = NPV/PVIFA @7%, 6 YEARS ANSWER EAC FOR MACHINE A = -17058969.92/4.7665397 = 630 -3578900.24 631 632 633 634 FORMULA : PVIFA @7%, 6 YEARS (1/r)*(1-(1/(1+r)^n)) (1/0.07)*(1-(1/(1+0.07)^6)) = 4.7665397 635 ... EAC MACRS RELEVANI MI-np-ir NPV BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE SLM GOLF IRR MACRS ...