Lobo is a leading manufacturer of positronic brains, a key component in robots. The company is considering two alternative production methods. The costs and lives associated with each are:

Assuming that Lobo will not replace the equipment when it wears out, which should it buy? If Lobo is going to replace the equipment, which should it buy (r = 13%)? Ignore depreciation and taxes in answering.

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Year Method 1 Method 2 $6,700 $9,900 400 620 2 400 620 3 400 620 620 4