Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3 million and will last for six years. Variable costs are 35% of sales, and fixed costs are $2,003,591 per year. Machine B costs $4.92 million and will last for nine years. Variable costs for this machine are 23% of sales and fixed costs are $1,309,481 per year. The sales for each machine will be $10.1 million per year. The required return is 11 %, 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 B.

Answer 1

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