Machines A and B are mutually exclusive and are expected to produce the following real cash flows:

Machine A: Year 0 = (112), Year 1 = 122, Year 2 = 133

Machine B: Year 0 = (78), Year 1 = 94, Year 2 = 78, Year 3 = 72

The real opportunity cost of capital is 12%.

Step 1: Calculate the Net Present Value of each machine.

Step 2. Calculate the equivalent annual cash flow from each machine.