1. Mr. Pat owns a small store. In one corner of the store is a video game machine. Ten years ago, it cost him $ 5000, but lately it has been breaking down more frequently. Last year, he had to spend $ 500 on repairs, and he expects the repair bill to go up by about 10% every year from now on. Also, it has been bringing in less money every year. He empties the coin box every month, and on average it contains about $ 100. He expects the annual income to go down by $ 100 every year from now on. If he got rid of the machine, he could use the space to stock more goods, and he expects this would increase his annual profit by $ 500. But the machine is not worth anything as scrap, and he will have to pay $ 200 to have it taken away. Mr. Pats MARR is 10%.

He carries out a replacement analysis, treating all the cash flows as discrete and annually compounded. The $ 5000 paid for the machine is a sunk cost that does not come into the calculation. Should Pat get rid of the machine in how many years?