ABC Metalworks wants to determine which model sheet-cutter to purchase. Three choices are available: machine 1 costs the least, but must be replaced the most frequently; machine 2 has average cost and average lifespan; machine 3 costs the most, but needs only infrequent replacement. Assume that all three machines meet production quality and volume standards; that annual maintenance is inversely proportional to the purchase price (that is, the cheaper machine requires higher maintenance); and that machine replacement, being instantaneous, will not disrupt production.

	Machine 1	Machine 2	Machine 3
Initial cost	2,000	3,200	4,500
Annual maintenance	400	300	200
Lifespan	2 years	3 years	4 years

1. Under a flat discount rate assumption of 5 per cent per year, calculate the NPV for each machine.
2. Which machine makes the most sense for cost-efficient production?
3. How does your answer to part b change under a flat 6 per cent discount rate assumption? Why?