*Please show all work, use excel and identify the value and units measured.

(Notes for my own Use: Ch14,7)

A small maufacturer 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 has no resale value.

Some basic data are given in the following table:

________________

Year of Operation Expenses Resale Value Breakdown Probability

1 1,500 7,000 0.1

2 2,000 5,000 0.2

3 3,000 4,000 0.4

4 4,500 2,000 0.5

5 6,000 500 0.8

_____________

a. At what year of operation should the boiler replaced?

b. What is the expected cost per year for the boiler under the optimal replacement strategy