A firm is considering replacement of an equipment, whose first cost is ! 4,000 and the scrap value is negligible at the end of any year. Based on experience, it was found that the maintenance cost is zero during the first year and it is ! 1,000 for the second year. It increases by ! 300 every year thereafter.

(a) When should the equipment be replaced if i = 0%?

(b) When should the equipment be replaced if i = 12%?

AppendixLO1