The XYZ Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following:
Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years, the machine could be sold for $5,000.
Machine B could be purchased for $40,000. It will also last 10 years and will require maintenance costs of $4,000 at the end of year three, $5,000 at the end of year five, and $6,000 at the end of year eight. After 10 years, the machine will have no salvage value.
Determine which machine XYZ should purchase. 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 any income tax considerations.