Sarthaks Test
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The capital cost of a machine is Rs. 10,500. Its resale value is Rs. 500. The maintenance costs are as follows:

When should the machine be replaced?

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Given: P = 10,500, Sn= 500 and so (P – Sn) = (10,500 – 500) = 10,000 is fixed for all the years.

From the above table the annual average maintenance cost A(n) is minimum for n = 5, is the optimal period for replacement of the machine and A(5) = Rs.3,660/-

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