15. A manufacturer has to decide between two alternative machines M1 and M2, about which pertinent information is given below:

Determine, (i) Optimal replacement period of M1 and of M2•
(ii) Which of the two is a better alternative?

Transcribed Image Text:

(a) Cost (b) Maintenance cost (c) Scrap value (d) Cost of Capital M Rs 5,000 Rs 800 p.a. for years 1, 2, ..., 5, increasing by Rs 200 every year thereafter. Nil M Rs 2,500 Rs 1,200 p.a. for years 1, 2, ..., 6, increasing by Rs 200 every year thereafter. (to be used as discount rate) 10% p.a. Nil