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You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a...

You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a three-year life, and has pretax operating costs of $72,000 per year. The Techron II costs $465,000, has a five-year life, and has pretax operating costs of $45,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $49,000. If your tax rate is 23 percent and your discount rate is 13 percent, compute the EAC for both machines.

Which machine do you prefer?

Solutions

Expert Solution

Solution :

The EAC of Techron I = - $ 136,975.7821

= - $ 136,975.78 ( when rounded off to two decimal places )

The EAC of Techron I = - $ 139,643.9749

= - $ 139,643.97 ( when rounded off to two decimal places )

Since Techron I has lower EAC of - $ 136,975.78, the same should be preferrred.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 2 years ago
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