You are evaluating two different silicon wafer milling machines. The Techron I c

Question

You are evaluating two different silicon wafer milling machines. The Techron I costs $212,000, has a 4-year life, and has pretax operating costs of $38,000 per year. The Techron II costs $305,000, has a 7-year life, and has pretax operating costs of $17,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $20,000. If your tax rate is 34 percent and your discount rate is 8 percent. The Techron I has an EAC of $ , while the Techron II has an EAC of $

Explanation / Answer

Hi,

Please find the answer as follows;

Techron 1

Initial Investment = -212000

After Tax Operating Cost = 38000*(1-.34) - 212000/4*(.34) = 7060

NPV = -212000 - 7060/(1+.08)^1 - 7060/(1+.08)^2 - 7060/(1+.08)^3 - 7060/(1+.08)^4 + 20000*(1-.34)/(1+.08)^4 = -225681.221

EAC = NPV/PVIFA(8%,4 Years) = -225681.221/3.3121 = -68138.41

Techron 2:

Initial Investment = -305000

After Tax Operating Cost = 17000*(1-.34) - 305000/7*.34 = -3594.29

NPV = -305000 -3594.29/(1+.08)^1 -3594.29/(1+.08)^2 -3594.29/(1+.08)^3 -3594.29/(1+.08)^4 -3594.29/(1+.08)^5 -3594.29/(1+.08)^6 -3594.29/(1+.08)^7 + 20000*(1-.34)/(1+.08)^7 = -316011.13

EAC = NPV/PVIFA(8%,7) = -316011.13/5.2064 = -60696.67

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.