A company needs to purchase a new processing machine for their western facility. The following data has been collected regarding the 2 options of machines they have to choose from. The company has an implied interest rate of 12%.

a. To purchase machine A, $200,000 cash will be paid immediately. For the remaining amount owed, annuity payments of $16,400 will be made at the end of each month for the next 2 years. The machine will be used for an estimated 10 years and will have a salvage value of $25,000 at that time. In addition, the machine will need annual maintenance for each of the 10 years it is in use. The maintenance will cost $1,500 each year and will be paid at the end of each year.

b. To purchase machine B, the company will enter into a 40 month contract which requires annuity payments of $20,600 to be paid at the end of each month. The machine will also be used for an estimated 10 years and will have a salvage value of $15,000 at that time. Machine B will need annual maintenance for the 10 year it is in use. The maintenance will cost $1,200 each year and will be paid at the end of each year.

Required: Which machine should the company purchase? Show all calculations for support of your answer.