You are evaluating two different silicon wafer milling machines. The Techron I costs $271,500, has a three-year life, and has pretax operating costs of $45,100 per year. The Techron II costs $372,500, has a five-year life, and has pretax operating costs of $48,100 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $20,500. Assume the tax rate is 35 percent and the discount rate is 11 percent.
Compute the EAC for both the machines.
Which machine would you prefer?