Best replacement policy using equipment replacement

Reference no: EM1316570

Best replacement policy using Equipment replacement problem.

Equipment Replacement Problem

A production department needs to purchase a new machine. As the machine ages, it requires additional maintenance and also has a higher defect rate. The production department plans to replace the machine every few years. The purchase price of a new machine is $12,000. The maintenance cost and cost of defective product is given below. A used machine has no resale value.

Age of machine	Maintenance Cost ($)	Cost of Defects ($)
First Year	3,000	2,000
Second Year	4,000	4,000
Third Year	6,000	7,000
Fourth Year	10,000	11,000
Fifth Year	20,000	24,000

Question: What is the best replacement policy over the next five years?

Reference no: EM1316570

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