1. Your company needs a new machine. Two companies are selling this machine in the market, their conditions are as below

Company A: The purchase of the new machine at a cost of 15,000. The purchase price includes maintenance for the first two years, but after that maintenance will cost 1,050 a year (payable at the end of each year).

The machine will have a useful life of five years, after which time it is estimated that it will have a scrap value of 4,000.

The expected income from the machine will be 1,500 at the end of the first year, 2,500 end of the second year, 3,500 end of the third year, 4,500 at the end of the fourth year, and 5,500 at the end of the fifth year.

Company B: The purchase of the new machine at a cost of 10,000. The purchase price includes maintenance for the first year, but after that maintenance will cost 1,000 a year (payable at the beginning of each year).

The machine will have a useful life of five years, after which time it is estimated that it will have a scrap value of 1,500.

The expected income from the machine will be 1000 at the end of the first year, 3000 each year at the end of the second, third and fourth years, and 5000 at the end of the fifth year

Assuming the discount rate is 4%, write a brief report advising the company on which contract will be more profitable and so whether it should accepted. Remember to take all costs and cash availability into consideration. Show any calculations you make in support of your recommendation. (14 points, no more than 500 words)

3. How confident are you about your advice and under what circumstances might it change? (5 points, no more than 100 words)