Your boss has told you to evaluate the cost of two machines. After some questioning, you are assured that they have the costs shown at the right. Assume:
a) The life of each machine is 3 years.
b) The company thinks it knows how to make 14% on investments no riskier than this one.
Determine via the present value method which machine to purchase.

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MACHINE A MACHINE B Original cost Labor cost per year $13,000 2,000 $20,000 3,000 Floor space per year 500 600 Energy (electricity) per year 1,000 900 Maintenance per year 2,500 500 Total annual cost $ 6,000 $ 5,000 Salvage value $2,000 $ 7,000