QUESTION 2 [19 Marks]
ESKOM is considering replacing one of the major conveyor belts at the Vanderbijlpark station,
whose first cost is R5,500 and the scrap value is negligible at the end of any year. From
experience, it was found that the maintenance cost is zero during the first year and it increases
by R150 every year thereafter.
2.1 By completing the table, when should the equipment be replaced if i = 0%?
End of year Maintenance cost Summation of Average maintenance Average
(n)
at end of year
A
B (R)
maintenance cost cost throughout year
C (R)
D (R)
ΣΒ
C/A
first cost
E (R)
5500/A
[9]
Average total
cost per year
F (R)
D+E
2.2 By completing the table, when should the equipment be replaced if i = 10%?
End of Maintenance cost P/F, 10%, n Present worth
year (n) at end of year
Σ
[10]
E+ 5500 A/P, 10%, n FxG
D
(B x C)
A
B (R)
C
D (R)
E (R)
F (R)
G
H (R)
