Topic : Replacement Analysis Problem 1 A firm is using a machine whose purchase price is $13,000. The installation charge amount to $3,600 and the machine has scrap value of only $1,600 because the firm has a monopoly of this type of work. The maintenance cost in various years is given in the following table: Year 1 2 3 4 5 6 7 8 9 Maint. 250 750 1,000 Cost ($) 1,500 2,100 2,900 4,000 4,800 6,000 The firm wants to determine after how many years should the machine be replaced? Problem 2 The original cost of the machine is $5,000. Operating cost varies as follow: Year 1 400 2 500 3 700 Oper. Cost ($) 4 1,000 5 1,300 6 1,700 7 2,100 At 9% is the discount rate of money, what should be the optimum replacement interval