Replacement Analysis

1. Estimate the economic life of an equipment with an initial cost of $10,000. Cost of maintenance is $1000 at the end of the first year, which is expected to increase by a $1000 each year for subsequent operational years. Consider only maintenance costs and capital recovery in your analysis. Interest rate is 15%

2. A machine has operating costs of $300 annually and a salvage value of $100. A replacement of this would cost $1000 to purchase and its operating cost over a period of t years is given by: M = 200t + 10t2. Without factoring interest rates:

What is the most economic life of the new machine

Should the old machine be replaced with a new one