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 $261,000, has a three-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a five-year life, and has pretax operating costs of $43,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $47,000. If your tax rate is 35 percent and your discount rate is 9 percent, compute the EAC for both machines. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places.

Explanation / Answer

Techron I Techron II Cost 261000 455000 Operating Cost 70000 43000 Life 3 5 Salvage Value 47000 47000 Tax Rate 35% Discount 9% After Tax Salvage Value 47000(1-.35) 30550 OCF of Techron I - 70000(1-.35)+.35(261000/3) = -15050 NPV = -261000-15050(PVIFA9%,3)+(30550/(1.09)3) = -275195 EAC = -275195/2.510 EAC -109639 Techron II OCF of Techron II - 43000(1-.35)+.35(455000/3) = 25133 NPV = -455000+25133(PVIFA9%,5)+(30550/(1.09)5) = -348854 EAC - 348854/3.889 EAC -89702.8 Techron II will be preferred due to lower EAC

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.