The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs:

Year	Machine A $	Machine B $
0	40,000.00	50,000.00
1	10,000.00	8,000.00
2	10,000.00	8,000.00
3	10,000.00 + replacement	8,000.00
4		8,000.00 + replacement

These costs are expressed in real terms.

1. Suppose you are Borstals financial manager. If you had to buy one or the other machine and rent it to the production manager for the machines economic life, what annual rental payment would you have to charge? Assume a 6% real discount rate and ignore taxes. (2 Marks)
2. Which machines should Borstal buy? (3 Marks)
3. Suppose you actually do buy one of the machines and rent it to the production manager. How much would you actually have to charge in each future year if there is steady 8% per year inflation? (5 Marks)

North Atlantic Ltd is expected to grow at various rates over the next five years. The company just paid a $1.00 dividend. The company expects to grow at 20% for the next two years (effecting D1 AND D2), then the company expects grow at 10% for three additional years (D3, D4, D5) after which the company expects to grow at a constant rate of 5% per year indefinitely. If the required rate of return on North Atlantics common stock is 12%, then what is a share of North Atlantics stock worth?