Case study on Replacement Theory

Case: In Delhi University there is a professor,Mr. Arun Julka. He owes two vehicle's, one is a Wagon R and second one is a bike ‘Yamaha RX100’. This bike is very special for him. He purchased this bike around 10-12 years ago.As of now this bike is in good condition, but it gives an average of 8 km/ltr.

Mr. Julka says my car gives an average of 12 km/ltr so, There is no need of riding on this bike. One day Mr. Julka was free, usually he is a very busy man bt bcoz of a national holiday he was siting idle. As he cannot sit idle, bcoz of his busy schedule. He started thinking n suddenly he think of his bike RX100. as he know abt the concepts of replacement theory, he thought to find out that what was the optimum time to replace the bike. The cost of this bike is Rs. 50,000. The data available to him is:

Year Resale value ∑R

1 47500 3350

2 46000 4350

3 44500 5100

4 41500 6200

5 39000 7500

6 37000 8000

7 33000 10150

8 25000 12850

9 18000 16000

10 12000 20500

Year Resale value

∑R C – S C – S + R (C – S + ∑R) / N

1 47500 3350 2500 5850 5850

2 46000 4350 4000 8530 4175

3 44500 5100 5500 10600 3533

4 41500 6200 8500 14700 3675

5 39000 7500 11000 18500 3700

6 37000 8000 13000 21000 3500

7 33000 10150 17000 27150 3878

8 25000 12850 25000 37850 4731

9 18000 16000 32000 48000 5333

10 12000 20500 38000 58500 5850