Solution Here, cost of the machine, C = + (52,000+ 14.400) = 2 66,400 Scrap value, S = 6,400 The optimum replacement period is determined as in table 114 TABLE 11.4 (3) (4) (5) Years of Purchase Annual Summation of Total cost service price - resale maintenance maintenance vale CS 16 (1) C (6) Average annual cos cost cost -s+350 +[c-s+350) T=0 1 60.000 1.000 1.000 61.000 61.000 2 60,000 3.000 4.000 64,000 32,000 3 60,000 4,000 8,000 68,000 22,667 4 60,000 6,000 14.000 74.000 18,500 5 60,000 8.400 22.400 82,400 16,480 6 60,000 11,600 34.000 94.000 7 60,000 16,000 50,000 1.10,000 15,714 8 60.000 19.200 69.200 1.29 200 16.150 We observe from the table that average annual cost is minimum (15,667) in the sixth year Hence the machine should be replaced at the end of 6 years of service 15,667 Solution Here, cost of the machine, C = + (52,000+ 14.400) = 2 66,400 Scrap value, S = 6,400 The optimum replacement period is determined as in table 114 TABLE 11.4 (3) (4) (5) Years of Purchase Annual Summation of Total cost service price - resale maintenance maintenance vale CS 16 (1) C (6) Average annual cos cost cost -s+350 +[c-s+350) T=0 1 60.000 1.000 1.000 61.000 61.000 2 60,000 3.000 4.000 64,000 32,000 3 60,000 4,000 8,000 68,000 22,667 4 60,000 6,000 14.000 74.000 18,500 5 60,000 8.400 22.400 82,400 16,480 6 60,000 11,600 34.000 94.000 7 60,000 16,000 50,000 1.10,000 15,714 8 60.000 19.200 69.200 1.29 200 16.150 We observe from the table that average annual cost is minimum (15,667) in the sixth year Hence the machine should be replaced at the end of 6 years of service 15,667