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5. Consider two mutually exclusive machines: A and B. Acquisition cost of A is $1,000 and of that of B is $1,800. Assume that both

5. Consider two mutually exclusive machines: A and B. Acquisition cost of A is $1,000 and of that of B is $1,800. Assume that both machines produce identical revenue and incur identical other costs over their lives. Both machines can be acquired repeatedly over time but the cost of capital of A is 6% and the cost of capital of B is 8%. Additionally, their maintenance costs over their lives (A has economic life of 3 years and B has economic life of 6 years) are as follows:

YearMaintenance Cost

AB

1160132

2160132

3160132

4132

5132

6130

Which of the two machines is economically more desirable?

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