Consider the following capital budgeting problem. The following two machines are mutually

exclusive and the firm would keep reinvesting in whatever machine it buys. Machine A would

be reinvested every $4$ years, machine B every $3$ years. The cash flows associated with each

machine are tabulated as follows; all numbers are in thousand dollars; the relevant discount

rate is $10\%$ for both machines.

Year Machine A Machine B

$0-80-100$

$15260$

$35260$

$424$

$1.$a Which of the two machines is the better investment project? Analyze the question under the

assumption that whatever machine the company buys has to be reinvested in perpetuity.

$1.$b Suppose A fits current technology, whereas machine B needs a one$-$time retooling for the company.

These one$-$off installation costs would be $$10,000$ today. What is the optimal investment decision

now?

$1.$c Suppose the investment opportunity described above lasts only for $24$ years. Recalculate your

decision rule for questions $1.$a and $1.$b$.$ What is the NPV of the optimal investment policy now