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An Engineering company is considering purchasing a piece of plant equipment and wishes to compare...

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Accounting

An Engineering company is considering purchasing a piece of plant equipment and wishes to compare its replacement strategies for purchase and maintenance over a period of time. The machines initial cost is $160,000 with immediate payment required. Running Costs including maintenance are $11,000 in year 1, $16,000 in year 2, $23,000 in year 3 and $32,000 in year 4. Payments are required at the end of each year. Interest rates are 4% p.a. The equipment will have a salvage value of $26,000 upon replacement. Should the company replace the equipment every 3 or 4 years?

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