FINA 301 Capital Budgeting Exercises Capital Budgeting Exercise 1 You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs S1500 initially, and then $400 per year in maintenance costs. Machine B costs $2000 initially, has a life of three years, and requires $300 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 6% and the tax rate is zero. Year Machine A's Cash Flows 0 Machine A's EAC Machine B's EAC Which machine do you choose? Explain