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 $258,000, has a three-year life, and has pretax operating costs of $69,000 per year. The Techron II costs $450,000, has a five-year life, and has pretax operating costs of $42,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $46,000. If your tax rate is 35 percent and your discount rate is 9 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

All Amounts in $ For calculating the EAC, we need to get the net present values of the amounts given The post tax operating costs per year per machine are as under : Techron I 44850 Techron II 27300 Based on the information given, the EAC of Techron I is worked out as $ 310,955.05 Similarly, the EAC of Techron II is worked out as $ 485,100.17

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