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Capital Equipment Replacement Under Technological Change

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  • Farid Mardin
  • Takeshi Arai

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.

Suggested Citation

  • Farid Mardin & Takeshi Arai, 2012. "Capital Equipment Replacement Under Technological Change," The Engineering Economist, Taylor & Francis Journals, vol. 57(2), pages 119-129.
    • Handle: RePEc:taf:uteexx:v:57:y:2012:i:2:p:119-129
    DOI: 10.1080/0013791X.2012.677112
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    Cited by:

    1. Yatsenko, Yuri & Hritonenko, Natali, 2015. "Algorithms for asset replacement under limited technological forecast," International Journal of Production Economics, Elsevier, vol. 160(C), pages 26-33.
    2. Yatsenko, Yuri & Hritonenko, Natali, 2017. "Machine replacement under evolving deterministic and stochastic costs," International Journal of Production Economics, Elsevier, vol. 193(C), pages 491-501.
    3. Yuri Yatsenko & Natali Hritonenko, 2016. "Asset replacement under improving operating and capital costs: a practical approach," International Journal of Production Research, Taylor & Francis Journals, vol. 54(10), pages 2922-2933, May.

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