ABSTRACT
Finding out the Replacement Cost of Capital is one of the major steps involved in efficiency estimation. Replacement Cost of Capital is defined as the Revaluation factor (RG) multiplied with the Value of Capital Stock at Historical Cost. This chapter discusses the Replacement Cost of Capital measurement. The chapter assumes that the lifespan of capital stock is 20 years following the Report of Machine Tools-1986. The year 1999–2000 was selected as the base year. So following Srivastava, no firm has any capital stock in the year 1999–2000 of a vintage earlier than 1979–1980. As Srivastava notes, for some firms the vintage of the oldest capital in the firm's asset mix and incorporation year may not coincide. The chapter uses Gross Fixed Assets of the firms for the estimation. This enables to apply the Perpetual Inventory Method to construct the capital stock.
