Solve this question with Equipment Replacement Method
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Solve this question with Equipment Replacement Method

Transcribed Image Text:12-25. Circle Farms wants to develop a replacement policy for its 2-year-old tractor over the
next 5 years. A tractor must be kept in service for at least 3 years, but must be disposed
of after 5 years. The current purchase price of a tractor is $40,000 and increases by 10%
a year. The salvage value of a l-year-old tractor is $30,000 and decreases by 10% a year.
The current annual operating cost of the tractor is $1300 but is expected to increase by
10% a year.
(a) Formulate the problem as a shortest-route problem.
(b) Develop the associated recursive equation.
(c) Determine the optimal replacement policy of the tractor over the next 5 years.
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