You are evaluating two different silicon milling machines:
A. The Techron I costs $215,000, has a three-year life, and a pre-tax operating costs of $35,000 per year.
B. The Techron II costs $270,000, has a five-year life, and has pre-tax operating costs of $44,000 per year.
For both milling machines, use straight-line depreciation to zero over a the project’s life and assume a salvage value of $20,000. If your tax rate is 35% and your discount rate is 12 percent, compare the EAC for both machines. Which do you prefer? Why?