Machine A could be purchased for $36,000. It will last 10 years with annual maintenance costs of $1,200 per year. After 10 years the machine can be sold for $3,780.
Machine B could be purchased for $30,000. It also will last 10 years and will require maintenance costs of $4,800 in year three, $6,000 in year six, and $7,200 in year eight. After 10 years, the machine will have no salvage value.
Required:
Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.)
Calculate the present value of machine A and machine B.