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. (Your answers should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

The EAC for Tachron 1 is -$86567.97 and The EAC for Techron 11 is -$81293.85

Step-by-step explanation:

Techron I PV Factor PV

Cost -2,10,000 1 -210000.00

1to3 Tas saving On Dep 23,800 2.577 61334.91

(210000/3)*.34

1to3 pretax operating costs -34980 2.577 -90146.85

= -53000*(1-0.34)

3 Salvage value 19800 0.7938 15717.88

30000*.66

NPV -223094.07

EAC = -86567.97/2.577 -86567.97

Therefore, The EAC for Tachron 1 is -$86567.97

Techron II PV Factor PV

Cost -370,000 1 -370000

1to3 Tas saving On Dep 25,160 3.993 100456.58

(370000/5)*.34

1to3 pretax operating costs -17160 3.993 -68514.9

=-26000*(1-0.34)

3 Salvage value 19800 0.6806 13475.547

30000*.66

NPV -324582.8

EAC = -324582/3.993 -81293.85

Therefore, The EAC for Techron 11 is -$81293.85