Describe the Replacement Analysis under the Infinite Planning Horizon?
Describe the Replacement Analysis under the Infinite Planning Horizon?
Replacement analysis is a method of evaluating the cost-effectiveness of replacing an old asset with a new one. When we say "infinite planning horizon", it means we assume that the asset we are analyzing will last forever or for a very long time.
In replacement analysis under infinite planning horizon, we compare the cost of owning the old asset for an indefinite period with the cost of buying a new one periodically. We assume that the old asset will have some residual value that we can sell or use towards the purchase of a new asset. We also consider the maintenance and operating costs of the old asset and the purchase and installation costs of the new one.
Step by step
Solved in 2 steps
