It is desired to compare the after-tax economics of two mutually exclusive alternatives with the following before-tax data for a study period (planning horizon) of 4 years:

Semiautomatic Machine Automatic Machine

First cost $100,000 $150,000

Useful life 4 years 5 years

Market value at end of useful life $0 $0

Annual before-tax cash disbursements $50,000 $15,000

Annual cash revenues $110,000 $90,000

MARR (after tax) = 15% p.a.

Study Period = 4 years

Both alternatives are to be depreciated using straight-line depreciation over the life of the machine. It is assumed that the automatic machine can be sold at the book value after 4 years,

I.e. 20% of the first cost of the machine after 4 years of depreciation.

A 40% tax rate is assumed.

Which alternative is preferred on the basis of net present value?