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A 2nd Unequal Lives Question

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Submitted By hockeyrulez
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To meet expanding demand, QuickBuild Inc. is looking to purchase a new packaging machine for its Waterloo plant. (CCA class 8, with a rate of 20%). Quickbuild has a corporate tax rate of 34% and a cost of capital of 11%. There are 2 machines that can be purchased. Regardless of what machine purchased, revenues associated with this project are expected to be $25,000 a year.
Machine 1
The industry standard machine costs $8500 and is expected to last 6 years. Allowable installation costs on this machine are $500. Experience has shown that there are 2 drawbacks to this machine. First, that the cost of operating this machine increases over time. The firm estimates that operating costs will be $5500 for the first 5 years after installation, and $6500 in the last year. And secondly, there is no significant salvage associated with this machine. The firm expects to spend $800 on net working capital when it purchases the machine. None of this is expected to be recouped at the end of the project.
Machine 2
There is another machine with an expected useful life of 2 years. The cost of this machine is $5100 which includes installation costs. At the end of 2 years, the salvage on the machine is $500. Operating costs on this machine are $6000 a year. In addition, this machine requires an increase in working capital items of $400 when it is installed. It is expected that the entire amount can be recouped at the end of the two years.
Which machine should QuickBuild purchase?

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