Suppose your boss has asked you to decide which piece of equipment to purchase. The first machine has an upfront cost of $20,000 and has expected after tax expenses of

$2500 a year for 5 years.

The second machine has an upfront cost which is lower, only $12,000, and expected after- tax expenses of $3500 a year for 3 years.

Assume that the firms cost of capital is 12%.

Which machine will you advise your boss to purchase? Show your work, and explain your final decision, making sure you explain to boss the relevant finance terminology.

Show work