Question

The purchase cost of vehicle is Rs.50,000 and its resale value is Rs.15,000. The maintenance costs in different years are as follows:

Find the optimal replacement period of the vehicle.

Answer 1

Given: P = 50,000. Sn = 15,000, Depreiation: (P – S_n) = (50,000 – 15000) = 35000

From the above the annual average maintenance cost is minimum for n = 4, is the optimum period for replacement of the vehicle.