7.33 Kaul Construction must choose between two pieces of equipment. Tamper A costs

$600,000 and it will last five years. This tamper will require $110,000 of maintenance each year. Tamper B costs $750,000, but it will last seven years. Maintenance costs for Tamper B are $90,000 per year. Kaul incurs all maintenance costs at the end of the year.

The appropriate discount rate for Kaul Construction is 12 percent.

a. Which machine should Kaul purchase?

b. What assumptions are you making in your analysis for part (a)?