Question: As a financial analyst at barclays, you are evaluating how often an equipment should be replaced. An equipment has a cost of $25,000. the annual maitenance costs of the equipment forecast as follows:
Cost
T= 0, $25,000
1 , 1000
2, 3000
3, 8000
4, 13000
5, 25000
The residua value can be ignored. The cost of capital of the company is 11% per year. Calculate the optimal replacement cycle for the machine.