Metal Ltd is looking at producing power boards.The company is considering alternative production methods.The costs (in million) and lives associated with each are:

Model

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Model 1

-$90

-$2

-$2

-$2

Model 2

-$80

-$8

-$8

-$8

-$8

-$8

Assume the discount rate is 10%, which model should Metal buy?

a.Metal Ltd should choose Model 1 as its annual equivalent cost is lower.

b.Metal Ltd should choose Model 1 as its annual equivalent cost is higher.

c.Metal Ltd should choose Model 2 as its annual equivalent cost is lower.

d.Metal Ltd should choose Model 2 as its annual equivalent cost is higher.