Machine X costs £20,000 when bought new and can be replaced every year, two years, three...

Machine X costs £20,000 when bought new and can be replaced every year, two years, three years or four years.

The following information is available.

Year	Realisable value when sold (£)	Maintenance costs for the year (£)
1	17,500	1,200
2	14,000	1,500
3	9,000	1,900
4	7,000	2,300

Cost of capital is 10%.

What is the optimal replacement policy?

A Replace every year

B Replace every two years

C Replace every three years

D Replace every four years

Expert Solution

jeff jeffy answered 2 years ago

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