Answer

Table 7.8 shows the various components of this problem for replacement periods from one to five years. It can be seen that the replacement period with the minimum equivalent annual cost is two years. Therefore, the economic life is two years.

As an example, the calculation for a three-year period is: EAC(capital costs)

= (45 000- 15 435) (4/P,8%,3) + 15 435(0.08) = 29 565(0.38803) + 15 435(0.08) = 12 707 EAC(maintenance costs)

= [3000(F/P,8%,2) 4- 6000(F/P,8%,1) + 12 000] (,4/F,8%,3) = [3000(1.1664) + 6000(1.08) + 12 000)](0.30804) = 6770

EAC(total) = EAC(capital costs) + EAC(maintenance costs) = 12 707 4- 6770 = 19 477B

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