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Suppose company Sith AB must choose between two lightsaber production machines. Machine A costs less than machine B but will not last as long. The

Suppose company Sith AB must choose between two lightsaber production machines. Machine A costs less than machine B but will not last as long. The cash outflows from the two machines are shown here:

Machine

Date

0 ()

1 ()

2 ()

3 ()

A

500

125

125

B

600

100

100

100

Machine A costs 500 and lasts 2 years. There will be maintenance expenses of 125 to be paid at the end of each of the 2 years. Machine B costs 600 and lasts 3 years. There will be maintenance expenses of 100 to be paid at the end of each of the 3 years. The market discount rate is 10%.

Which machine should be chosen and why? Please show all steps of your work.

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