7.34 Philben Pharmaceutics must decide when to replace its autoclave. Philben’s current autoclave will require increasing amounts of maintenance each year. The resale value of the equipment falls every year. The following table presents this data.

Philben can purchase a new autoclave for $3,000. The new equipment will have an economic life of six years. At the end of each of those years, the equipment will require $20 of maintenance. Philben expects to be able to sell the machine for $1,200 at the end of six years. Assume that Philben will pay no taxes. The appropriate discount rate for this decision is 10 percent. When should Philben replace its current machine?

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Year Today Maintenance Costs Resale Value $ 0 $900 1 200 850 2345 2 275 775 325 700 450 600 500 500