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 $210,000, has a three-year life, and has pretax operating costs of $53,000 per year. The Techron II costs $370,000, has a five-year life, and has pretax operating costs of $26,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $30,000. If your tax rate is 34 percent and your discount rate is 8 percent, compute the EAC for both machines. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Techron I PV Factor PV Cost -2,10,000 1 -210000.00 1 to 3 Tas saving On Dep (210000/3)*.34 23,800 2.577 61334.91 1 to 3 pretax operating costs =-53000*(1-0.34) -34980 2.577 -90146.85 3 Salvage value 30000*.66 19800 0.7938 15717.88 NPV -223094.07 EAC =-86567.97/2.577 -86567.97 Techron II PV Factor PV Cost -3,70,000 1 -370000 1 to 3 Tas saving On Dep (370000/5)*.34 25,160 3.993 100456.58 1 to 3 pretax operating costs =-26000*(1-0.34) -17160 3.993 -68514.9 3 Salvage value30000*.66 19800 0.6806 13475.547 NPV -324582.8 EAC =-324582/3.993 -81293.85

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