Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.3 million and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $325,000 per year. Machine B costs $4.9 million and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $365,000 per year. The sales for each machine will be $11 million per year. The required return is 10 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.
Note: 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.
Machine A
Machine B
Which machine should the company choose?
O Machine A
O Machine B