Question

The cost of a scooter is Rs. 36,000. Its resale value and maintenance cost at different years is given below:

Determine the optimal year for replacement of the scooter.

Answer 1

P = 36,000 let s_n be the resale value and C_i be the maintenance cost. The Annual average cost:

A(n) =T/n . Here T-total maintenance cost = (P-S_n) + ΣC_i; n-the year of service.

From the above table A(n) is least for the year n = 5 so, the scooter is replaced after use of 5 years, (is the optimal year for replacement of the scooter)