Problem:
You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a three-year life, and has pretax operating costs of $72,000 per year. The Techron II costs $465,000, has a five-year life, and has pretax operating costs of $45,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $49,000.
Required:
Question: If your tax rate is 35 percent and your discount rate is 9 percent, compute the EAC for both machines.
Note: Provide specific examples to support your answers.