purchase price = 8000

Yr
Maintenance Cost
Resale Price
1
1000
4000
2
1300
2000
3
1700
1200
4
2200
600
5
2900
500
6
3800
400
7
4800
400
8
6000
400

Yr

Maintenance Cost
cum sum MC Resale
PP-resale
1
1000
1000
4000
4000
2
1300
2300
2000
6000
3
1700
4000
1200
6800
4
2200
6200
600
7400
5
2900
9100
500
7500
6
3800
12900
400
7600
7
4800
17700
400
7600
8
6000
23700
400
7600

2
PP

9000
operating cost
1
2
3
4

cumsum
200
2200
4200
6200

b. PP

resales

200
2400
6600
12800

PP-resale
0
9000
0
9000
0
9000
0
9000

10000
operating cost
1
2
3
4
5
6
7

cumsum
400
1200
2000
2800
3600
4400
5200

400
1600
3600
6400
10000
14400
19600

resales
0
0
0
0
0
0
0

PP-resale
10000
10000
10000
10000
10000
10000
10000

it
cost of machien A in the 2nd year
2200

cost of machine A in the 3rd year

4200 > annual average cost per year fpor machine B (4,000)
machine A should be replaced by machine B at the end of two years (

Age

Runnig Cost
1
2
3
4
5

80000
100000
120000
150000
180000

after 5 yrs, MC - 3500k; k-6,7,8)

resale value decraeses by 10% of the purchase price per year, what is the best replacement policy?
PP

600000
RESALE VALUE DECREASES 6K PER YEAR
operating cost
cumsum
resales
PP-resale
1
80000
80000
60000
540000
2
100000
180000
60000
480000
3
120000
300000
60000
420000
4
150000
450000
60000
360000
5
180000
630000
60000
300000
6
210000
840000
60000
240000
7
245000
1085000
60000
180000
8
280000
1365000
60000
120000
9
315000
1680000
60000
60000
10
350000
2030000
60000
0

Age
Running Co

1
80000

2
100000

3
120000

4
150000

machine cpost per year

(cumsum+(pp-Resale)
Annual Average cost per year
5000
5000
8300
4150
10800
3600
13600
3400 decreaseing
16600
3320 material should be replaced at the end of the 5th year
20500 3416.667 increasing
25300 3614.286
31300
3912.5

(cumsum+(pp-Resale)
Annual Average cost per year
9200
9200
11400
5700
15600
5200 A should be replaced at the end of the third year
21800
5450

(cumsum+(pp-Resale)
Annual Average cost per year
10400
10400
11600
5800
13600 4533.333
16400
4100
20000
4000 extend
24400 4066.667 extend
29600 4228.571 extend

year fpor machine B (4,000)

ced by machine B at the end of two years (1yr after it's one yr old)

ear, what is the best replacement policy?

ESALE VALUE DECREASES 6K PER YEAR

(cumsum+(Annual Average cost per year
60000
140000
140000 IT IS ECONOMICAL TO REPLACE THE TRCUK AT THE EN
120000
300000
150000
180000
480000
160000
240000
690000
172500
300000
930000
186000
360000 1200000
200000
420000 1505000
215000
480000 1845000
230625
540000 2220000 246666.7
600000 2630000
263000

5
180000

e 5th year

HE TRCUK AT THE ENDOF THE FIRST YEAR