Continue with the Equipment Replacement problem for company K

Assume that the cost to purchase a new machine is $$10,000$; purchase cost remains constant throughout the planning horizon.

The annual operating costs and salvage value of the machine are as shown in the table below.

Age of machine $($years$)$ Annual Operating costs Salvage value

$1$ $$500$ $$7,000$

$2$ $$1,500$ $$6,000$

$3$ $$2,500$ $$5,000$

$4$ $$3,500$ $$4,000$

$5$ $$4,500$ $$3,000$

$6$ $$5,500$ $$2,000$

The problem was modeled in Excel $($as you have done in your group assignment$).$

Running Solver yields the optimal solution that is displayed in the image below.

Briefly describe the optimal replaceme policy. That is$,$ specify when should they purchase a new machine and sell the old one. What is the total cost of this optimal policy?

Hint: Recall that the purchase cost of a new machine $($at any year$)$ is $$10,000.$ Use the purchase cost of $$10,000$ and the operating costs & salvage costs as shown in the above table to determine the total cost of the optimal replacement policy $($as determined by solver and shown in the above image$)$