A supermarket is trying to determine the optimal replacement policy for its fleet of delivery vehicles. The total purchase price of the fleet is $\$ 220,000$.

The running costs and scrap values of the fleet at the end of each year are:

The supermarket's cost of capital is $12 \%$ per annum.
Ignore taxation and inflation.
Identify at the end of which year the supermarket should replace its fleet of delivery vehicles.

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Year 1 Year 2 Year 3 Year 4 Year 5 Running costs $110,000 $132,000 $154,000 $165,000 $176,000 Scrap value $121,000 $88,000 $66,000 $55,000 $25,000