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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
Expert Solution
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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
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