Decide of the optimal replacement cycle for machine

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Reference no: EM131896937

A machine has a cost of $3,500. The annual maintenance costs of the machine are forecast to be $900 in the first year, $1,000 in the second year and $1,200 in the third year of ownership. The residual value of the machine is expected to be $2,100 after two years and $1,600 after three years. The cost of capital of the company is 15% per year. By computing and comparing the EAC of the two replacement-cycles, decide of the optimal replacement cycle for the machine.

Reference no: EM131896937

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