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(a) A machine A costs Rs.9000/-. Annual operating costs are Rs. 200/- for the first year and then increases by Rs.2000/- every year. Determine the best age at which the machine A is to be replaced? If the optimum replacement policy is followed, what will be the average yearly cost of owning and operating the machine? Assume machine has no resale value when replaced and that future costs are not discounted.
(b) Machine B costs Rs. 10000/-. Annual operating costs are Rs. 400/- for the first year and then increases by Rs. 800/- every year. You have now a machine of type A, which is of one year old. Should you replace it with B, and if so, when?