A machine used on a production line must be replaced at least every four years. The costs incurred in running the machine according to its age are: Age of machine (years) Purchase price Maintenance Repairs Net Realisable value 0 3,000 Cost of capital - 14% P.V. factors @ 15% P.V. of annuity @ 15% 1 1 0.8696 0.8696 800 2 2 0.7561 1.6257 900 200 1,200 3 1,600 Future replacement will be identical machines with the same costs. Revenue is unaffected by the age of the machine. Assume there is no inflation and ignore tax. The cost of capital is 15%. Determine the optimum replacement cycle. 3 0.6575 2.2832 1,000 400 800 4 1,000 800 400 4 0.5718 2.8550