Spike Inc is considering the purchase of a new machine for the production of computers. Machine A costs $3,400,000 and will last for 6 years. Variable costs are 20% of sales and fixed costs are $850,000 per year. Machine B costs $5,600,000 and will last for 10 years. Variable costs for the machine are 15% of sales and fixed costs are $1,000,000 per year. The sales for each machine will be $5,000,000 per year. The required rate of return is 8%, the tax rate is 21%, and both machines will be depreciated using straight-line with a no salvage value.

a.) What is the NPV for Machine A?

b.) What is the equivalent annual annuity for Machine B?

c.) Based on the information provided, should the firm:

- purchase machine A because it has a higher equivalent annual annuity

- purchase machine A because it has a higher NPV

- purchase machine B because it has a higher equivalent annual anniuity

- purchase machine B because it has a higher NPV