Your have been asked to evaluate two machines. The life cycle of each machine is 4 years and the interest rate is $3%$ . Assume all costs occur at the end of each year. Salvage value is received at the end of the life cycle. One labour hour is expected to cost $$12$ in year 1 and 2. Cost of labour will increase by $25%$ in year 3 and 4 (from year 1 and 2 ). a) Determine via the present value method which machine to purchase. Show all calculations you are using to reach a conclusion.

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Your have been asked to evaluate two machines. The life cycle of each machine is 4 years and the interest rate is

3%

. Assume all costs occur at the end of each year. Salvage value is received at the end of the life cycle. One labour hour is expected to cost

$12

in year 1 and 2. Cost of labour will increase by

25%

in year 3 and 4 (from year 1 and 2 ). a) Determine via the present value method which machine to purchase. Show all calculations you are using to reach a conclusion.

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