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Homework answers / question archive / You are evaluating two different silicon wafer milling machines
You are evaluating two different silicon wafer milling machines. The Techron | costs $267,000, has a 3-year life, and has pretax operating costs of $72,000 per year. The Techron Il costs $465,000, has a 5-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. (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.) Answer is complete but not entirely correct. Techron $ -136,975.78 Techron II $ -491,160.15 X Which machine do you prefer? Techroni O Techron 11
TECHORON I & II SALVAGE VALUE= 49000
AFTER TAX SALVAGE VALUE = 49000(1-0.23)= 37730
| TECHRON-1 | |||||
| YEAR | 0 | 1 | 2 | 3 | |
| PROJECT COST | -267000 | ||||
| ANNUAL COST | -72000 | -72000 | -72000 | ||
| DEPRECIATION(267000/3) | 89000 | 89000 | 89000 | ||
| EBT | -161000 | -161000 | -161000 | ||
| TAX | -37030 | -37030 | -37030 | ||
| EAT | -123970 | -123970 | -123970 | ||
| DEPRECIATION | 89000 | 89000 | 89000 | ||
| CFAT | -267000 | -34970.00 | -34970.00 | -34970.00 | |
| SALVAGE VALUE AFTER TAX | 37730 | ||||
| TERMINAL CFAT | -267000 | -34970.00 | -34970.00 | 2760.00 | |
| PV FACTOR @13% | 1 | 0.8850 | 0.7831 | 0.6931 | |
| PV OF CFAT | -267000 | -30946.9 | -27386.64 | 1912.82 | -323420.72 |
| NPV | -323420.72 | NPV | |||
| EAC | -136975.78 | NPV/PVIFA@13%,3YRS | |||
| (-323420.72/2.3612) | |||||
| TECHRON-II | |||||||
| YEAR | 0 | 1 | 2 | 3 | 4 | 5 | |
| PROJECT COST | -465000 | ||||||
| ANNUAL COST | -45000 | -45000 | -45000 | -45000 | -45000 | ||
| DEPRECIATION(465000/3) | 93000 | 93000 | 93000 | 93000 | 93000 | ||
| EBT | -138000 | -138000 | -138000 | -138000 | -138000 | ||
| TAX | -31740 | -31740 | -31740 | -31740 | -31740 | ||
| EAT | -106260 | -106260 | -106260 | -106260 | -106260 | ||
| DEPRECIATION | 93000 | 93000 | 93000 | 93000 | 93000 | ||
| CFAT | -465000 | -13260.00 | -13260.00 | -13260.00 | -13260.00 | -13260.00 | |
| SALVAGE VALUE AFTER TAX | 37730 | ||||||
| TERMINAL CFAT | -465000 | -13260.00 | -13260.00 | -13260.00 | -13260.00 | 24470.00 | |
| PV FACTOR @13% | 1 | 0.8850 | 0.7831 | 0.6931 | 0.6133 | 0.5428 | |
| PV OF CFAT | -465000 | -11734.51 | -10384.53 | -9189.85 | -8132.61 | 13281.34 | -491160.15 |
| NPV | -491160.15 | ||||||
| EAC | -139643.97 | NPV/PVIFA@13%,3YRS | |||||
| (-494460.15/3.5172) |
SELECT TECHRON-I
IT HAS LOWER EAC
