Suppose a state transportation department is taking bids to repave a particularly hilly stretch of road in the southern part of the state. The work would take place the following year. Firm 1 bids $200,000 for the job and guarantees that there would be no potholes for three years. Firm 2 bids $100,000 but offers no guarantee. The state finance department says it costs $40,000 per year to fill potholes on this road segment. If the relevant interest rate is 8%, with which company should the state contract? Show all work and provide an explanation.