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You are evaluating two different silicon wafer milling machines. The Techron I costs $297,000, has a...

You are evaluating two different silicon wafer milling machines. The Techron I costs $297,000, has a 3-year life, and has pretax operating costs of $82,000 per year. The Techron II costs $515,000, has a 5-year life, and has pretax operating costs of $55,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $59,000. If your tax rate is 23 percent and your discount rate is 11 percent, compute the EAC for both machines.

Solutions

Expert Solution

Techron I:

Annual depreciation = Capital cost / Life = 297,000 / 3 = 99,000

Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $.

Techron II

Annual depreciation = 515,000 / 5 = 103,000

jeff jeffy answered 1 year ago
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