Data table Initial investment in 2021 $ Modernize Replace 34,800,000 $ 64,500,000 Terminal disposal value in 2027 Useful life Total annual cash operating cost per prototype chip $ 6,800,000 $ 15,500,000 7 years 68,000 $ 7 years 59,000 Expert Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2021, and all transactions thereafter occur on the last day of the year. Expert Chips' required rate of return is 10%. There is no difference between the "modernize" and "replace" alternatives in terms of required working capital. Expert Chips has a special waiver on income taxes until 2027.