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I am having trouble calculating this with the salvage value.

Question 4 (of 7) 4. value 2.85 points You are evaluating two different silicon wafer milling machines. The Techron I costs $

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Answer #1

Techron I:

Depreciation for 3 years = 231,000 /3 =77000

Annual cashflow= - 60,000 * (1-35%) + 77000 *35% = -12050

After tax salvage value = 37000 * ( 1-35%) = 24050

Year Cash flow PV Factor Discounted value
0 -231000 1 -231000
1 -12050 0.917431193 -11055.04587
2 -12050 0.841679993 -10142.24392
3 -12050 0.77218348 -9304.810935
3 24050 0.77218348 18571.0127
NPV -242931.088

EAC = NPV / PVAF ( 9%,3years) = -242931.088 / 2.53129 = 95971.08

Techron II:

Depreciation for 3 years = 405,000 /5 =81000

Annual cashflow= - 33,000 * (1-35%) + 81000 *35% = 6900

After tax salvage value = 37000 * ( 1-35%) = 24050

Year Cash flow PV Factor Discounted value
0 -405000 1 -405000
1 6900 0.917431193 6330.275229
2 6900 0.841679993 5807.591954
3 6900 0.77218348 5328.066012
4 6900 0.708425211 4888.133956
5 6900 0.649931386 4484.526565
5 24050 0.649931386 15630.84984
NPV -362530.5564

EAC = NPV / PVAF ( 9%,5years) = - 362530.5564/ 3.88965 = -93203.87

Techron II must be chosen since the EAC is lower.

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