Question
3. A construction company wants to determine the optimal replacement policy for the earth mover it owns. The company has a policy of not keeping
3. A construction company wants to determine the optimal replacement policy for the earth mover it owns. The company has a policy of not keeping an earth mover for more than 5 years, and has estimated the annual operating costs and trade-in values for earth movers during each of the 5 years they might be kept as shown in the following table: Age in Years 021 122 223 324 Operating cost $8,000 $9,100 $10,700 $9,200 Trade-in value $14,000 $9,000 $6,000 $3,500 Assume that new earth movers currently cost $25,000 and are increasing in cost by 4.5% per year. The company wants to determine when it should plan on replacing its current, two-year-old earth mover. Use a 5-year planning horizon.
a. Draw the network representation of this problem.
b. Implement your model in a spreadsheet and solve it.
c. What is the optimal solution? d. What other aspects of this problem might an analyst want to consider?
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