Given : cost/purchase price ‘P’ = Rs. 36,000

Let C_{i }be the maintenance cost, Sn be the resale value and n be the number of years.

Average annual cost : A(n) =\(\frac{T}{n}\) ; where T = (p – S_{n} ) + ΣC_{i}

Here, average annual cost A (n) is minimum for n = 5.

∴ The optimal replacement age is 5 years

i.e. the machine should be replaced for every 5 years.

Minimum annual average cost is Rs. 5,960.