A construction company wants to determine the optimal replacement policy for the

Question

A construction company wants to determine the optimal replacement policy for the earth mover it owns. The company has a policy of not keeping an earth mover for more than five years, and has estimated the annual operating costs and trade-in values for earth movers during each of the five years they might be kept as:

Assume that new earth movers currently cost $25,000 and are increasing in cost by 4.5% per year. The company wants to determine when it should plan on replacing its current, 2-year-old earth mover. Use a 5-year planning horizon.
a. Draw the network representation of this problem.
b. Write out the LP formulation of this problem.
c. Solve the problem using Solver. Interpret yoursolution.

Explanation / Answer

LP formulation is:

Z1 = 8000x + 14000y

Z2 = 9100x + 9000y

Z3 = 10700x + 6000y

Z4 = 9200x + 3500y

Z5 = 11000x + 2000y

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