Tim Smunt has been asked to evaluate two machines.

After some investigation, he determines that they have the costs shown in the following table. He is told to assume that:

1. The life of each machine is 3 years.

2. The company thinks it knows how to make 12% on investments no more risky than this one.

3. Labor and maintenance are paid at the end of the year.

MACHINE A MACHINE B Original cost $10,000 $20,000 Labor per year 2,000 4,000 Maintenance per year 4,000 1,000 Salvage value 2,000 7,000 Determine, via the present value method, which machine Tim should recommend.