code class$=$"asciimath"$>$Mr$.$ Vet was considering buying an MRI scanner. After negotiating with national and international suppliers, he found two that interested him. Supplier $1$ was one of the Spanish suppliers Mr$.$ Vet worked with the most. This company offered Vet Center the MRI$-$A$,$ which normally cost $280$ thousands, for $240$ thousands. Although the machine would only have a one$-$year guarantee, Mr$.$ Vet expected the scanner to have a useful life of $10$ years under normal circumstances, with zero salvage value. The operating cost of this machine in the first year would be approximately $12,000$ including maintenance costs. Mr$.$ Vet believed that the operating costs of the MRI$-$A machine would increase at a rate of $6\%$ per year, compared with an anticipated general inflation rate of $2\%.$ Supplier $2$ was a French company that Mr$.$ Vet got to know on his trip to France. It offered the MRI$-$B$,$ which cost $200$ thousands. Although the purchase price would be lower, the operating costs of the MRI$-$B machine would be higher than those of the MRI$-$A$.$ The MRI$-$B machine's operating expenses in the first year would be around $16,000,$ growing at a rate of $6\%$ per year. In addition, the MRI$-$B would need a general overhaul at the end of the third and sixth years of its eight$-$year useful life. The supplier offered to carry out these two overhauls for $12,000$ and $18,000,$ respectively, payable at the time of each overhaul. The overhaul expenses would be amortized over the rest of the machine's useful life. Mr$.$ Vet and his financial adviser prepared cost analyses for the two machines. The cost of capital for Vet Center was estimated to be $12\%.$ Mr$.$ Vet felt, however, that the $12\%$ discount rate was not consistent with Vet Center's capital structure. He argued that Vet Center's shareholder equity and retained earnings had no interest charges. As a result, he thought the proper discount rate to use should not be $12\%,$ but only $10\%,$ the cost of borrowing. Having consulted experts, Mr$.$ Vet was told that he would be able to sell the MRI$-$A machine after eight years for $62,500.$ Vet Center would use straight$-$line depreciation and would be subject to corporation tax at a rate of $35\%.$ All cash flows were assumed to occur at the end of December. You have been hired by Mr$.$ Vet to calculate the profitability of these two MRI scanners and to recommend the one that will maximize the economic value to Vet Center. Which machine would you recommend, basing your analysis on the net present value $($NP V$)$ rule? What is the appropriate discount rate to use? Why? Using the internal rate of return $($IRR$)$ rule, which machine would do you recommend? How do you explain any difference between the IRR and NPV rankings? Which rule is better? Use a BAII Plus Professional Calculator to solve.