Logar plc is considering the purchase of a machine which will increase sales by £110,000 per year for a period of five years. At the end of the five-year period, the machine will be scrapped. Two machines are being considered and relevant financial information on each is as follows:

The following average annual rates of inflation are expected:
Sales prices....................................6 per cent per year
Labour costs...................................5 per cent per year
Power costs....................................3 per cent per year
Logar pays corporation tax of 30 per cent one year in arrears and has a nominal after-tax cost of capital of 15 per cent. Capital allowances are available on a 25 per cent reducing balance basis.
Advise the financial manager of Logar on the choice of machine.

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Machine A Machine B Initial cost (E) Labour cost (£ per year) Power cost (E per year) Scrap value (E) 200,000 250,000 7,000 4,000 25,000 10,000 9,000 nil