Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,970,000 and will last for 4 years. Variable costs are 38 percent of sales, and fixed costs are $149,000 per year. Machine B costs $4,710,000 and will last for 8 years. Variable costs for this machine are 30 percent of sales and fixed costs are $111,000 per year. The sales for each machine will be $9.42 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. Required: (a) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.) (b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)

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To calculate the Equivalent Annual Cost EAC for each machine we need to consider the initial investm... View the full answer