Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
You are evaluating two different silicon wafer milling machines. The Techron I costs $228,000, has a three-year life, and has pretax operating costs of $59,000 per year. The Techron II costs $400,000, has a five-year life, and has pretax operating costs of $32,000 per year. For both milling machines, use straight-line
Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
To calculate the Equivalent Annual Cost (EAC) for both Techron I and Techron II, we'll use the following formula:
Where:
- is the present value of costs,
- is the salvage value,
- is the discount rate,
- is the project's life.
For Techron I:
- Initial cost () = $228,000
- Operating cost per year () = $59,000
- Salvage value () = $36,000
- Discount rate () = 8%
- Project life () = 3 years
Calculate for Techron I:
Now, calculate for Techron I using the formula:
For Techron II:
- Initial cost () = $400,000
- Operating cost per year () = $32,000
- Salvage value () = $36,000
- Discount rate () = 8%
- Project life () = 5 years
Calculated for Techron II:
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