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	$47,000		$57,000
1	11,400		10,800
2	11,400		10,800
3	11,400	+ replace	10,800
4			10,800	+ replace

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 that machines economic life, what annual rental payment would you have to charge? Assume a 10% real discount rate and ignore taxes.

	Annual Rental Payment
Machine A	?
Machine B	?

2. Which machine should Borstal buy?

3. If there is steady 6% per year inflation, what will be the annual rental payment for machine B for the second year?