3. Comparing Mutually Exclusive Projects with different lifespans. Victoria Linens purchased a machine 5 years ago for R12m, expecting it to have an economic life of 12 years. However, the defect rate of this machine is no longer acceptable to customers and the cost of materials, returns and inspections means that the company is required to replace the machine with new equipment. The existing machine can be sold for R2.2m. The original machine required the company to invest R600 000 in working capital and this will be recovered upon the sale of the machine. The company can invest in either Machine X or Machine Y. Details regarding each new machine option are as follows: Machine X Machine Y Cost (R) 6 200 000 9 100 000 Effective Economic Life 5 years 7 years Investment in net working capital (R) 1 200 000 1 500 000 Residual values at end of effective life (R) 1 100 000 1 700 000 Annual operating costs (R) 2 400 000 1 600 000 The corporate tax rate is 28%. The company will employ the straight-line method to depreciate the machines for tax purposes over their effective lifespans. The firms cost of capital is 10%. Victoria Linens expects to be producing the line of products manufactured on these machines for the indefinite future. The costs and revenues are expected to remain constant in the future. Which of the two machines (machine Xx or machine Y) should the firm select?