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 = $10,000, the maintenance cost and resale value at the end of year ‘n’ of its life can be expressed by the following formulae:

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%.

The maintenance cost at the end of year 7 is

a.

$2,292

b.

$25,841

c.

$3,959

d.

$4,467
 

C Maintenance cost 0.08C(1.2" + 2) Resale value log. (1.5n + 2)