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The initial cost of an air compressor is $6,000. Operation and maintenance costs tend to increase year by year throughout its life as shown

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The initial cost of an air compressor is $6,000. Operation and maintenance costs tend to increase year by year throughout its life as shown below. YEAR 1 2 3 4 5 6 7 OPERATION AND REPAIR COSTS $1,000 $1,100 $1,200 $1,400 $1,600 $2,200 $3,000 The salvage value is $3,600 after 1 year, and it decreases by $400 each year. With the required rate of return at 15%: a) Determine the most economical year to replace the compressor. b) Determine the most economical year to replace the compressor if the salvage value is zero at all times.

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