Problem $6-18$ Comparing Mutually Exclusive Projects

Vandelay Industries is considering the purchase of a new machine for the production of

latex. Machine A costs $$3,140,000$ and will last for six years. Variable costs are $36$

percent of sales, and fixed costs are $$280,000$ per year. Machine B costs $$5,364,000$

and will last for nine years. Variable costs for this machine are $31$ percent of sales and

fixed costs are $$205,000$ per year. The sales for each machine will be $$11\mathrm{.}7$ million per

year. The required return is $9$ percent, and the tax rate is $22$ 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$.,1,234,567\mathrm{.}89.$

Which machine should the company choose?

Machine A

Machine B