What minimum option value necessary to justify development? b. is the c. What is the minimum level of perpetual annual CFATs needed to justify development (Replacement cycles) Auto Diagnostics Inc. is considering which of two emission testing devices to buy. Machine A costs $100,000, has a five-year useful life, and has operating expenses of $40,000 per year. Machine B costs $36,000, has a six-year useful life, and has operating expenses of $62,000 per year. Both machines will have zero salvage value, rev enues of $85,000 per year, and straight-line depreciation to a zero book value, and both will be replaced at the end of their lives. The firm's tax rate is 35%. a. Assume a 12% cost of capital for each machine. Which one should the finn buy? b. Suppose instead, machine A requires a higher costof capital 15%, because its a riskier process. Machine Bs cost of capital is still 12%, which machine should the firin buy