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In: Finance

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

  1. 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

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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