A client has asked your advice on the acquisition of equipme…

A client has asked your advice on the acquisition of equipment for a new business endeavor.  Alternative A costs $1,200,000 and has annual maintenance expenses of $60,000.  Alternative B is a more advanced machine costing $1,700,000.   This machine will have maintenance expenses of $40,000 per year and will also lower production costs by $80,000 per year.  Both machines have a 5-year life, straight-line depreciation and zero salvage value.  The company’s cost of capital is 10% and tax rate is 35%. Which machine should the client purchase and how much more value is added by choosing this alternative?  (i.e. what is the difference in NPV between the two alternatives).