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 $225,000, has a three-year life, and has pretax operating costs of $58,000 per year. The Techron II costs $395,000, has a five-year life, and has pretax operating costs of $31,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $35,000. If your tax rate is 35 percent and your discount rate is 10 percent, compute the EAC for both machines.

Explanation / Answer

EAC-Techron I=$352,145/3.2382=$108,748.26

EAC-Techron II=$498,388/4.4117=$112,969.49

PV operating cost-Techron I year cash flow PV@10% PV 0        -225,000           1.00             -225,000 1            -58,000      0.9091                 -52,727 2            -58,000      0.8264                 -47,934 3            -58,000      0.7513                 -43,576 3              22,750      0.7513                   17,092 3.2382             -352,145 PV operating cost--Techron I year cash flow PV@10% PV 0        -395,000           1.00             -395,000 1            -31,000      0.9091                 -28,182 2            -31,000      0.8264                 -25,620 3            -31,000      0.7513                 -23,291 4            -31,000      0.6830                 -21,173 5            -31,000      0.6209                 -19,249 5              22,750      0.6209                   14,126 4.4117             -498,388

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