This extended example illustrates what happens to the EAC when we consider taxes. You are evaluating two different pollution control options. A filtration system will cost $1.1 million to install and $60,000 annually, before taxes, to operate. It will have to be completely replaced every five years. A precipitation system will cost $1.9 million to install, but only $10,000 per year to operate. The precipitation equipment has an effective operating life of eight years. Straight-line depreciation is used throughout, and neither system has any salvage value. Which option should we select if we use a 12 percent discount rate? The tax rate is 34 percent.