You are considering purchasing a new machine for your production facility. You have two options: Model Mk-4 or K700.

Mk-4 costs $2,800,000 and will last for 6 years before it needs to be replaced. Variables costs will be 34% of sales and fixed costs will be $180,000 per year.

K700 will cost $5,000,000 and will last for 9 years. Variable costs will be 30% of sales and fixed costs will be $125,000 per year.

The sales for each machine will be the same $10,000,000.

Your required return is 12% and the applicable tax rate is 32%. Both machine will be depreciated on straight line basis to 0.

If you plan to replace the machine when in wears out on a perpetual basis, which machine should you choose?