A small manufacturing firm is considering purchasing a new machine to modernize one of its current production lines. Two types of machines are available on the market. The lives of machine A and machine B are four years and six years, respectively, but the firm does not expect to need the service of either machine for more than five years. The machines have the expected receipts and disbursements given in Table P6.50.
The firm always has another option: leasing a machine at $3,000 per year, which is fully maintained by the leasing company. After four years of use, the salvage value for machine B will remain at $1,000.
(a) How many decision alternatives are there?
(b) Which decision appears to be the best at i = 10%?

Item First cost Service life Estimated salvage value Annual O&M costs Change oil filter every Machine A $6,500 4 years $600 $800 Machine B $8.500 6 years $1,000 $520 $100 other year Engine overhaul one $200 (every 3 years) $280 (every 4 years)