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
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
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbe6b13ad-da49-44d6-90a8-1141666eab21%2F086d7b25-df84-4c7e-8f5b-5a98abc15455%2Fiy0811k_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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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