You are evaluating two different silicon wafer milling machines. The Techron I costs $450,000, has a three-year life, and has pretax operating costs of $85,000 per year. The Techron II costs $580,000, has a five-year life, and has pretax operating costs of $91,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $76,000. If your tax rate is 35 percent and your discount rate is 14 percent, compute the EAC for both machines. Which do you prefer? Why?
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