Question

You are evaluating two different silicon wafer milling machines. The Techron I costs $258,000, has a 3-year life, and has pretax operating costs of $69,000 per year. The Techron II costs $450,000, has a 5-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 25 percent and your discount rate is 10 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Which machine do you prefer?

• Techron I

• Techron II

Answer 1