Replace the machine when it wears out on perpetual basis

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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,084,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $225,000 per year. Machine B costs $5,283,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $160,000 per year. The sales for each machine will be $10.7 million per year. The required return is 11 percent, and the tax rate is 30 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 EAC for each machine.

Reference no: EM13947546

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