Vandalay Industries is considering the purchase of a new machine for theproduction of latex. Machine A costs $1,810,000 and will last for 4 years. Variablecosts are 37 percent of sales, and fixed costs are $179,000 per year. Machine Bcosts $4,730,000 and will last for 8 years. Variable costs for this machine are 32percent of sales and fixed costs are $117,000 per year. The sales for each machinewill be $9.46 million per year. The required return is 10 percent and the tax rate is21 percent. Both machines will be depreciated on a straight-line basis.If the company plans to replace the machine when it wears out on a perpetualbasis, what is the EAC for machine A?EACIf the company plans to replace the machine when it wears out on a perpetualbasis, what is the EAC for machine B?EAC

Equivalent annual cost refers to the cost incurred for owning, operating, and the maintenance of an…

Answered: Vandalay Industries is considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,870,000 and will last for 4 years. Variable costs are 37 percent of sales, and fixed costs are $136,000 per year. Machine B costs $4,340,000 and will last for 7 years. Variable costs for this machine are 31 percent of sales and fixed costs are $126,000 per year. The sales for each machine will be $8.68 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?
Vandalay industries is considering the purchase of a new machine for the production of latex. Machine A cost $2,270,000 and will last for 4 years. Variable cost are 38 percent of sales, and fixed cost are $145,000 per year. Machine B cost $4,290,000 and will last for 8 years. Variable costs for this machine are 29 percent of sales and fixed costs are $84,000 per year. The sales for each machine will be $8.58 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. A.Required: if the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? Do not round your intermediate calculations. B. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? Do not round your intermediate calculations.
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,140,000 and will last for 6 years. Variable costs are 36 percent of sales, and fixed costs are $125,000 per year. Machine B costs $4,340,000 and will last for years. Variable costs for this machine are 31 percent of sales and fixed costs are $78,000 per year. The sales for each machine will be $8.68 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? EAC $ -2,983,801.79 $ 3,873,398.21 $-12,995,234.69 $ -3,132,991.88 $ -2,834,611.70 If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? EAC $ -2,886,934.04 $-15,401,580.02 $ 3,970,265.96 $ -3,031,280.74 $ -2,742,587.33
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,860,000 and will last for 5 years. Variable costs are 40 percent of sales, and fixed costs are $166,000 per year. Machine B costs $4,410,000 and will last for 7 years. Variable costs for this machine are 29 percent of sales and fixed costs are $89,000 per year. The sales for each machine will be $8.82 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. 1. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A ( (a)-3,330,803.31 (b) 3,636,996.69 (c) -12,626,365.14 (d) -3,497,343.48 (e) -3,164,263.15 2. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B (a) -2,864,510.25 (b) -13,945,635.62 (c) 4,103,289.75 (d) -3,007,735.77 (e) -2,721,284.74
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,210,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $350,000 per year. Machine B costs $5,455,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $240,000 per year. The sales for each machine will be $12.4 million per year. The required return is 9 percent, and the tax rate is 24 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. (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.) Answer is complete but not entirely correct. System A $ -4,473,627.60 X System B $ -4,090,361.10

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