Criteria for asset replacement studies

Criteria for asset replacement studies

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Article ID: iaor1991802
Country: Netherlands
Volume: 17
Issue: 1/4
Start Page Number: 271
End Page Number: 275
Publication Date: Aug 1989
Journal: Engineering Costs and Production Economics
Authors: ,
Keywords: replacement
Abstract:

The paper deals with replacement problems, i.e. those arising when assessing the relative merits of extending the services of assets already owned and acquiring new ones to perform the same or similar services. A general characteristic of these problems is that, contrary to what is an established feature in economic comparisons, past decisions do influence the future both because the depreciation of the used asset may not have been completed and because the loss on disposal may not correspond to the actual result of the trading off: both facts have an influence on taxation and the former must also take into consideration the depreciation accounting system. Also, when a higher resale price is offered for the used asset by the seller of the new asset, considering this as a discount on the price of the latter entails differences in the deductions from taxable income which must be taken into consideration. Lastly when the used asset has been bought with a loan the repayment of this entails a modification in the straight economic comparison. Numerical examples are given.

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