An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 28

The five nodes in the following network represent points one year apart over a four-year period. Each node indicates a time when a decision is made to keep or replace a firm's computer equipment. If a decision is made to replace the equipment, a decision must also be made as to how long the new equipment will be used. The arc from node 0 to node 1 represents the decision to keep the current equipment one year and replace it at the end of the year. The arc from node 0 to node 2 represents the decision to keep the current equipment two years and replace it at the end of year 2. The numbers above the arcs indicate the total cost associated with the equipment replacement decisions. These costs include discounted purchase price, trade-in value, operating costs, and maintenance costs. Use a shortest-route model to determine the minimum cost equipment replacement policy for the four-year period.