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# Optimal Replacement Strategy

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https://brainmass.com/economics/production/optimal-replacement-strategy-141868

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A small manufacturer uses an industrial boiler in its production process. A new boiler can be purchased for \$10,000. As the boiler gets older, its maintenance expenses increase while its resale value declines. Since the boiler will be exposed to heavy use, the probability of a breakdown increases every year.
Assume that when a boiler breaks down, it can be used through the end of the year, after which it must be replaced with a new one. Also, assume that a broken-down boiler ahs no resale value.
Some of the basic data are given in the following table:

Year of operation Expenses Resale Value Breakdown ...

#### Solution Summary

Optimal Replacement Strategy is considered.

\$2.19