Calculation of Equated Annual Cost (EAC).

You are evaluating two different silicon wafer milling machines. The Techron I costs $195,000, has a three-year life, and has pre-tax operating costs of $32,000 per year. The Techron II costs $295,000, has a five-year life, and has pre-tax operating costs of $19,000 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 14 percent, compute the EAC for both machines. Which machine do you prefer? Why?