A)

Suppose a firm has to choose between two machines, A and B. The two machines do exactly the same job and have the same capacity.

Machine A is a premium model. It costs $199 thousand and will last 4 years. It costs $51 thousand per year to run.

Machine B is a basic model, costing only $92, but it will last only 3 years and costs $55 per year to run.

The opportunity cost of capital is 6.3% per year. The annual operating cost of the machine that the firm should adopt is $_________ thousand a year.

B)

A company is considering installing solar panels on its roof. The project will cost $689 thousand if it is installed now. It will save $74 thousand of energy cost each year. The life span of the panels is 20 years.

If the company waits a year to install the panels, the cost of installation will decrease by $45 thousand, but everything else will remain the same (e.g., life span, energy bills saving).

The opportunity cost of capital is 8.0% per year.

The net present value of the solution that the firm should adopt is $______ thousand.