Vandalay Industries is considering the purchase of a new machine for the product

Question

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,066,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $210,000 per year. Machine B costs $5,256,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $145,000 per year. The sales for each machine will be $10.4 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. What is the NPV for each other? A and B. What is the EAC for each other? A and B. Which machine should you choose?

Explanation / Answer

A

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