A firm is attempting to decide which of two machines to purchase. The machines serve exactly the same purpose, so the only issue is their cost.

Machine A costs $30,000; it will last three years and cost $8,000 to run each year. Machine B costs $20,000; it is expected to last only two years and to cost $12,000 to run each year. At an interest rate of 10 percent, which machine costs less? (Be care- ful to account for the different working lives of the machines. You may wish to compare them over a six-year horizon.)