Question: You are evaluating two different silicon wafer milling machine. The Techron I costs $270,000 (initial investment), has a 3-year life, and has pretax operating costs

You are evaluating two different silicon wafer milling machine.

The Techron I costs $270,000 (initial investment), has a 3-year life, and has pretax operating costs of $69,000 per year.

The Techron II costs $475,000(initial investment), has a 5-year life, and has pretax operating costs of $36,000 per year.

For both milling machines, use straight-line depreciation to zero over the projects life and assume no salvage value for Techron I and II.

The tax rate is 35%, and the discount rate is $10%.

  1. What is the amount of annual depreciation expenses for each machine?
  • Techron I
  • Techron II
  1. Compute the annual OCF from each machine.
  • Techron I
  • Techron II
  1. Compute the NPV of each machine.
  • Techron I
  • Techron II
  1. Compute EAC for each machine.
  • Techron I
  • Techron II
  1. Which do you prefer? Why?

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