The attached file contains a worked example from a textbook. Explain it.
Neglecting income taxes and assuming an interest rate of 0%, calculations for determining the most economic replacement interval are as follows.
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This problem is greatly simplified by assuming an interest rate of 0%. All you need to do is think about the "average cost per year" if you kept the machine for each of the specified years. Since the time value of money is not considered with an interest rate, the calculations are simplified in the following way:
If you kept the machine 1 year, it ...
This explains an example problem regarding depreciation.