Reference no: EM133074801
1. Calculating EAC
You are evaluating two different silicon wafer milling machines. The Techron I cost $215,000, has a three-year life, and has pretax operating costs of $35,000 per year. The Techron II costs $270,000, has a five-year life, and has pretax operating costs of $44,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $20,000. If your tax rate is 35 percent and your discount rate is 12 percent, compute the EAC for both machines. Which do you prefer? Why?
2. Cost-Cutting Proposals
Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $640,000 is estimated to result in $270,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $70,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,500 in inventory for each succeeding year of the project. If the shop's tax rate is 35 percent and its discount rate is 14 percent, should Massey buy and install the machine press?
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: You are evaluating two different silicon wafer milling machines. The Techron I cost $215,000, has a three-year life, and has pretax operating costs of $35,000 p
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