The data on the operating costs per year and resale prices of equipment A whose purchase price is Rs 10,000 are given here:

(a) What is the optimum period for replacement?

(b) When equipment A is 2 years old, equipment B, which is a new model for the same usage, is available.
The optimum period for replacement is 4 years with an average cost of Rs 3,600. Should we change equipment A with that of B? If so, when?

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Year 1 2 3 4 5 6 7 Operating cost (Rs) : 1,500 1,900 2,300 2,900 3,600 4,500 5,500 Resale value (Rs) : 5,000 2,500 1,250 600 400 400 400