Bob Tate is the project manager for a large tunnel project through the Swiss Alps. Planning is at a preliminary stage with one of the biggest decisions being which type of drilling machinery to use. There are two options, one built by a Scottish firm, the other by a South Korean firm.

The Scottish machine is the cheaper of the two. Each machine will cost $100M; life, 2 years; salvage value at end of two years, $20M; annual operating costs for both years, $50M assume incurred at end of each year.

The South Korean machine is more expensive, but lasts longer of the two. Each machine will cost $150M; life, 3 years; salvage value at end of three years, $50M; annual operating costs for all three years, $40M assume incurred at end of each year.

If the tunnel will take six years of digging and the appropriate risk adjusted discount rate is 5.0%, which choice should Bob make, Scottish machine, or the other from the South Korean firm?