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12 February, 14:57

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.)

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  1. 12 February, 15:41
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    The EAC for Tachron 1 is - $86567.97 and The EAC for Techron 11 is - $81293.85

    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
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