=+12* Netq ple manufactures Qtrans, for which demand fluctuates seasonally. Netq has two machines, each with a

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=+12* Netq ple manufactures Qtrans, for which demand fluctuates seasonally. Netq has two machines, each with a productive capacity of 1,000 Qtrans per year. For four months of the year cach machine operates at full capacity. For a further four months the machines operate at three-quarters of their full capacity and for the remaining months they produce at half capacity. The operating costs of producing a Qtran is f4 and the machines are expected to be productive to an indefinite horizon. Netq is considering scrapping the old machines (for which the firm will receive nothing) and replacing them with new improved versions. These machines are also expected to last forever if properly maintained but they cost £7,000 each. Each has an annual capacity of 1,000 Qtrans. Operating costs (including maintenance) will, however, fall to £1.80 per Qtran. The firm's cost of capital is 13 per cent. Should Netq replace both of its machines, one of them, or neither? Assume output is the same under each option and that the new machines have the same productive capacity as the old.

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