Replacement Decision

i) Use the equivalent annual cost method to determine the optimum replacement policy

ii) Use the lowest Common Multiple method to justify four decisions with the previous method

Ak Uche and Sons Ltd is trying to decide the frequency of replacement for a machine, that company have just decided to purchase the machine cost 225,000 and has an operating life of 3 years resale valve and running cost for the machine each year over his life has been estimated as follows Years 1 2 Resale Value 180,000 135,000 90,000 Running Cost 36,000 54,000 72,000 w N 3 The coming cost of capital is 13% 1) Use the Equivalent Annual Cost method to determine the optimum replacement policy 11) Use the lowest Common Multiple method to justify your decision (ignore Taxation)