Vandelay Industries is considering the purchase of a new machine for the production of latex.
Machine A costs $ and will last for six years. Variable costs are of sales, and fixed
costs are $ per year. Machine B costs $ and will last for nine years. Variable costs
for this machine are of sales and fixed costs are $ per year. The sales for each machine
will be $ per year. The appropriate discount rate is and the tax rate is Both
machines will be depreciated to zero on a straightline basis. If the company plans to replace the
machine when it wears out on a perpetual basis, which machine should you choose? Explain your
answer and show all your calculations.
