Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 18QAP
Summary Introduction
Adequate information:
Cost of Machine A = $1,980,000
Useful life of Machine A = 6 years
Variable costs of Machine A = 35% of sales
Fixed costs of Machine A= $187,000
Cost of Machine B = $5,400,000
Useful life of Machine B = 9 years
Variable costs of Machine B = 30% of sales
Fixed costs of Machine B= $145,000
Sales of each Machine = $12,400,000
Required return = 10% or 0.10
Tax rate = 21% or 0.21
To compute: Which machine should Company V choose?
Introduction:
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Students have asked these similar questions
Vandalay Industries is considering the purchase of a new machine for the production of
latex. Machine A costs $2,140,000 and will last for 6 years. Variable costs are 36 percent
of sales, and fixed costs are $125,000 per year. Machine B costs $4,340,000 and will last
for years. Variable costs for this machine are 31 percent of sales and fixed costs are
$78,000 per year. The sales for each machine will be $8.68 million per year. The
required return is 10 percent and the tax rate is 21 percent. Both machines will be
depreciated on a straight-line basis.
If the company plans to replace the machine when it wears out on a perpetual basis,
what is the EAC for machine A?
EAC
$ -2,983,801.79
$ 3,873,398.21
$-12,995,234.69
$ -3,132,991.88
$ -2,834,611.70
If the company plans to replace the machine when it wears out on a perpetual basis,
what is the EAC for machine B?
EAC
$ -2,886,934.04
$-15,401,580.02
$ 3,970,265.96
$ -3,031,280.74
$ -2,742,587.33
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,870,000 and will last for 4 years. Variable costs are 37 percent of sales, and fixed costs are $136,000 per year. Machine B costs $4,340,000 and will last for 7 years. Variable costs for this machine are 31 percent of sales and fixed costs are $126,000 per year. The sales for each machine will be $8.68 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,860,000 and will last for 5 years. Variable costs are 40 percent of sales, and fixed costs are $166,000 per year. Machine B costs $4,410,000 and will last for 7 years. Variable costs for this machine are 29 percent of sales and fixed costs are $89,000 per year. The sales for each machine will be $8.82 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis.
1. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A (
(a)-3,330,803.31
(b) 3,636,996.69
(c) -12,626,365.14
(d) -3,497,343.48
(e) -3,164,263.15
2. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B
(a) -2,864,510.25
(b) -13,945,635.62
(c) 4,103,289.75
(d) -3,007,735.77
(e) -2,721,284.74
Chapter 6 Solutions
Corporate Finance
Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQCh. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQCh. 6 - Prob. 6CQCh. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQCh. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...
Ch. 6 - Prob. 11CQCh. 6 - To answer the next three questions, refer to the...Ch. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Calculating Project NPV Down Under Boomerang,...Ch. 6 - Calculating Project Cash Flow from Assets In the...Ch. 6 - Prob. 5QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 7QAPCh. 6 - Prob. 8QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Calculating Salvage Value An asset used in a...Ch. 6 - Calculating NPV Thurston Petroleum is considering...Ch. 6 - Prob. 12QAPCh. 6 - Cost-Cutting Proposals Starset Machine Shop is...Ch. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 15QAPCh. 6 - Prob. 16QAPCh. 6 - NPV and Bonus Depreciation Eggz, Inc., is...Ch. 6 - Prob. 18QAPCh. 6 - Prob. 19QAPCh. 6 - Prob. 20QAPCh. 6 - Prob. 21QAPCh. 6 - Prob. 22QAPCh. 6 - Prob. 23QAPCh. 6 - Prob. 24QAPCh. 6 - Prob. 25QAPCh. 6 - Prob. 26QAPCh. 6 - Prob. 27QAPCh. 6 - Prob. 28QAPCh. 6 - Prob. 29QAPCh. 6 - Prob. 30QAPCh. 6 - Prob. 31QAPCh. 6 - Prob. 32QAPCh. 6 - Prob. 33QAPCh. 6 - Prob. 34QAPCh. 6 - Prob. 35QAPCh. 6 - Prob. 36QAPCh. 6 - Prob. 37QAPCh. 6 - Prob. 38QAPCh. 6 - Prob. 39QAPCh. 6 - Prob. 40QAPCh. 6 - Prob. 41QAPCh. 6 - Prob. 42QAPCh. 6 - Prob. 1MCCh. 6 - GOODWEEK TIRES, INC. After extensive research and...
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