Deferral Analysis

If you replace an asset before the optimal replacement timing the cost is the sacrificed life labeled in the figure below as the cost of early forced replacement. On the other hand, the cost of delaying replacement past the optimal timing is the increased risk cost that will be faced each year until the asset is replaced that exceeds the EAC of the new asset. Either way, the cost of a replacement on an adjusted schedule is the absolute value of the difference between the EAC and the marginal risk cost for each year in which the adjusted program differs from the optimal program.

Continue to Replacement with Differing Asset.


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