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Find the optimum replacement interval for equipment

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Reference no: EM133124707

A tractor can be purchased for $45,000. Annual O&M costs are expected to increase $1,500 every year, with a 1st year O&M cost of $3,000.

(MARR = 26%, and planning horizon is 10 years)

The compressor salvage value for a given period t, is calculated based on the following equation:

Salvage value (t) = $30,000- $3,000 * t

(a) Find the Optimum Replacement Interval for this Equipment

(b) Find the Optimum Replacement Interval for this Equipment if the O&M costs is increased to $1,700/yr. What is your conclusion?

(c) Find the Optimum Replacement Interval for this Equipment if the initial cost is reduced to $40,000. What is your conclusion? (independent of part b)

Reference no: EM133124707

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