You are evaluating two different silicon wafer milling machines. The Techron I costs $490,000, has a three-year
Question:
You are evaluating two different silicon wafer milling machines. The Techron I costs $490,000, has a three-year life, and has pretax operating costs of $90,000 per year. The Techron II costs $620,000, has a five-year life, and has pretax operating costs of $97,000 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 21 percent and your discount rate is 14 percent, compute the EAC for both machines. Which do you prefer? Why?
Step by Step Answer:
We will need the aftertax salvage value of the equipment to compute the EAC Even though the e...View the full answer
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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