1) You are estimating 2 various silicon wafer milling machines. Techron I costs= $228,000, has a 3-year life, and has pretax operating costs of= $59,000 per year. Techron II costs= $400,000, has a 5-year life, and has pretax operating costs of= $32,000 per year. For both milling machines, utilize straight-line depreciation to zero over project’s life and suppose a salvage value of= $36,000. If your tax rate is 34% and your discount rate is 8%, calculate the EAC for both machines.
2) Lang Industrial Systems Company (LISC) is trying to make a decision between 2 different conveyor belt systems. System X costs= $280,000, has a 4-year life, and needs $85,000 in pretax annual operating costs. System Y costs= $396,000, has a 6-year life, and needs= $79,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have 0 salvage value. Any project is selected; it won’t be replaced when it wears out. Tax rate is 35% and discount rate is 9%.
Compute the NPV for both conveyor belt systems. Which conveyor belt system must the firm select?