Capital Equipment Replacement Under Technological Change

Farid Mardin · Takeshi Arai

28 citations0/0 files storedThe Engineering Economist

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Capital Investment and Risk Analysis Life Cycle Costing Analysis Transportation Systems and Infrastructure

Abstract

In this article, one of the commonly used replacement decision methods, the challenger–defender (CD) method, is modified. The proposed method is shown to outperform the original CD method and, in some cases, it outperforms the original economic life (EL) method. When the annual multiplier for the purchase price (a) is higher than that for the new asset operating and maintenance (O&M) costs (q), the solution of the modified CD method is more advantageous compared with the EL method when the new asset O&M costs purchased at time 0 (A) are higher. Furthermore, this modified CD method is more advantageous compared to the two-replacement-cycle method when the annual effective discount rate (d) is higher.

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References

2004Equipment replacement under continuous and discontinuous technological change 2002A paradox in equipment replacement under technological improvement

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2016Optimal replacement policies for an uncertain rejuvenated asset

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