A firm has three options concerning the replacement of one of its machines.

First, the firm can rent a machine for the next 10 years at $60,000 per year. They will also hire a consultant for $5,000 per year.

Second, the firm can purchase a normal machine for $170,000 that will work for the next 10 years. The depreciation will be reported using a straight-line method. The maintenance will be $22,000 per year. It will have a salvage value of $10,000 at year 10.

Third, the firm can purchase an advanced machine for $300,000 that will work for the next 10 years. The depreciation will be reported using a straight-line method. The maintenance will be $12,000 per year. The cost will be lower by $8,000 per year. There will be a $30,000 cost at t=0 to train workers on how to use the machine.

Use the WACC of 7.65%.

Which project is better?

You must provide the income statement of the project with all items in the income statement for each year until the end of the project. It is a pro-format statement. It is incremental: you have just to consider the amounts each year for the project only.