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Machines A and B have the following cash flows (d) Cash flows (shs. '000 C4 140 Co C1 C2 C3 Cs C6 Machine A Machine

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Machines A and B have the following cash flows (d) Cash flows (shs. '000 C4 140 Co C1 C2 C3 Cs C6 Machine A Machine B -120 110 120 130 150 160 121 -120 110 133 Machine C was purchased five years ago for shs. 200,000/- and produces an annual cash flow of shs. 80,000/-. It has no salvage value but is expected to last another five years. The company can either replace machine C with machine A now or replace it with machine B at the end of five years. The company's cost of capital is 10% per annum. What should the company do? (7 marks)

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