Question 8: [10 marks]

A corporation is faced with a choice between two machines, Beta and Zeta, both of which are designed to improve operations by saving on labour costs. Beta costs $20, 000 and will generate an annual labour savings of $6, 000. Zeta costs $22, 000 and will save $6, 500 annually. Beta has a useful life of 5 years and Zeta has a useful life of 6 years. Assuming that cost of capital is 11% per annum, and zero salvage value for both machines, which machine is preferable, and why?