Explain this problem and make an explanation how the problem is solved.

REPLACEMENT ANALYSIS: SPECIFIED PERIOD EXAMPLE SOLUTION From previous analysis,AW,for I and 2 years, An asset purchased 2 years ago for $40,000 is harder to maintain than expected. It can be sold now for $12,000 or kept for a maximum of Z more years, in which case operating cost will be $20,000 each year with a salvage value of $10,000 after I year or $9000 after two.A suitable challenger will have an annual worth of $- 24,000 per year. At an interest rate of 10% Per year and over a study period of exactly 2 years determine when the defender should be replaced and Awv.are AWDI- $-23,200 AWD2$-22,629 AWC- $-24,000 OptionYear 1,$ Year 2,$ Year 3,$ AW,$ I (C,C,C) -24,00024,000 24,0024,000 2 (D,C,D) -23,200 24,000 24,000 23,708 3 (D,DC) -22,629-22,629 24,000 23,042 Decision: Option 3; Keep D for 2 years, then replace