An NPV analysis of opportunity-based age replacement model

This paper generalises the existing opportunity-based age replacement policies for a one-unit system by introducing the Net Present Value (NPV) of the expected total costs, where two cases are considered. First, we reformulate two basic opportunity-based age replacement models with replacement first and last disciplines, in which the failure time and the arrival time of a replacement opportunity are statistically independent. Next, we perform the NPV analysis for the failure-correlated opportunity-based age replacement models with replacement first and last disciplines. Since the NPV approach is useful to estimate more accurate replacement costs over a long-time planning in an unstable economic environment, we obtain the expected total discounted costs over an infinite time horizon and derive the optimal preventive replacement policies by minimising them in both cases. Numerical examples with the Farlie-Gumbel-Morgenstern bivariate copula are presented to investigate the dependence of correlation between the lifetime and the opportunistic replacement time on the opportunity-based age replacement policies.