A bakery is considering the purchase of a new delivery van costing £20,000. The estimated running costs of the van are £3000 in the first year, rising annually by 15% thereafter. If the van’s depreciation is 20% per annum and the cost of capital is 9%, how often should the van be replaced? How would your answer be affected if (i) the rate of depreciation decreased/increased

(ii) the cost of capital altered? (Vary depreciation from 15% to 25% and capital cost from 6% to 12%).

(Answer: Modify the equipment-depreciation model of Figure