Bloggs Engineering has recently carried out a detailed cost analysis of its machinery. Having studied past records of the maintenance costs and depreciation of its machines, the company has found that for a machine with a capital cost C, the maintenance cost and resale value at the end of year ‘n’ of its life can be expressed by the following formulae:

Maintenance cost = 0.08C(1.2n + 2) Resale value = C/loge(1.5n + 2)

Bloggs Engineering wants to find the optimum replacement time for the machines over a period of eight years, given that the annual cost of capital is 10%.

(Answer: Take a copy of Figure 5.3 and use the template of Table