Question: A widget manufacturer operates two machines , each of which has a capacity of 1000 units a year. They have an indefinite life and zero salvage value. The operating cost is $2 per widget. Widget is a seasonal business. During half of the year they run at full capacity and in the balance half at 50% capacity. The discount rate is 10%. The company is considering, whether to replace these machines with newer equipments. The new machine has similar capacity and two would be needed to meet the peak demand. Each new machine cost $6000 and lasts indefinitely. Operating expenses are only $1 per unit. On this basis , find the replacement strategy.