ABSTRACT
This chapter considers the different factors that play a role in deciding whether an asset, such as a machine or other equipment, should be replaced. The main objective of a replacement study is to figure out when the asset should be replaced and not whether it should be replaced. Replacement analysis is an application of equivalent uniform annual cost and annual benefit to alternatives with unequal lives. A replacement study can be undertaken for three specific reasons: compromised or subpar performance of equipment, changed specifications, and obsolescence. The basic criterion for replacement is that if the market trade-in is greater than the break even replacement value, it deems the challenger a better alternative than the defender. The chapter provides a clear distinction between replacement studies using economic service life (ESL) and their counterparts using fixed life time periods. The ESL corresponds to the smallest total equivalent uniform annual costs.
