An engineering firm asks you to calculate and decide between buying or renting a new piece of equipment for a local SME (4-year project).

Purchase: New equipment costs $ 9,200 and will have a residual value of $ 2,600 in 4 years. The annual cost of maintenance is $ 550 in the first year and increases by $ 60 per year thereafter.

Rental: The rental option is $ 3,400 per year payable at the beginning of each year of the contract (therefore 4 payments, the first payment is due upon signing the contract). The annual maintenance cost is $ 800 (payable at the end of the first year and also increases by $ 60 per year for the duration of the contract.

If the company uses an 8% rate, assess which of these options the firm should choose using the present value (P) method.