(i) The followings show two machinery options.

OPTION 1: The initial purchase price of the machine is $30,000. The salvage value at the end of the useful life will be $4,000. Maintenance costs are $2,000 for the first year and are estimated to increase by $200 per year.

OPTION 2: The machine is leased for an initial payment of $2,000 plus annual payments of $3,500. There is no salvage value. Annual maintenance cost is $10,000.

Put down the present value of each of the items specified for each machinery option in the table below. Assume an interest rate of 6% and a useful lifetime of 8 years. Show your calculations in the spaces below the table. 

Present Value (PV) of Item
	Option 1	Option 2
PV of Purchase/Lease
PV of Salvage Value
PV of Maintenance
Total PV

Option 1: Show calculations of PV of Salvage Value and PV of Maintenance.

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Option 2: Show calculation of PV of Lease.

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ii)What is the annual equivalent cost of capital (i.e. capital recovery), over the 8-year lifetime, for the machine with the lowest present value calculated in the above table?