What is the optimum replacement policy

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Reference no: EM132761470

Problem 1: A contractor wishes to develop an optimum replacement policy for some equipment he needs for the next seven years. Assume Pt will be the purchase price at the beginning of year t, and P1=$200, P2=$210, P3=$225, P4=$250, P5=$270, P6=$290, and P7=$300. The salvage value of a one-year old piece of equipment is $100, and it is $50 for a two-year old piece of equipment. Older equipment is worthless. The annual operating costs in the respective periods are Y1=$50, Y2=$75, Y3=$100, Y4=$150, Y5=$200, Y6=$300, and Y7=$450. All dollar values are expressed in present worth values. What is the optimum replacement policy? Develop a network to represent all the alternatives. Calculate the most economical path.

Reference no: EM132761470

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