Considering purchasing piece of plant equipment

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An Engineering company is considering purchasing a piece of plant equipment and wishes to compare its replacement strategies for purchase and maintenance over a period of time. The machine’s initial cost is $170,000 with immediate payment required. Running Costs including maintenance are $12,000 in year 1, $17,000 in year 2, $24,000 in year 3 and $33,000 in year 4. Payments are required at the end of each year. Interest rates are 4% p.a. The equipment will have a salvage value of $27,000 upon replacement. Should the company replace the equipment every 3 or 4 years?

Reference no: EM131965876

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