Ch13 - Engineering Economic Analysis - Ninth Edition

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Unformatted text preview: Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 1 Engineering Economic Analysis 9th Edition Chapter 13 REPLACEMENT ANALYSIS Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 2 The most common question asked in industry is: when should the existing be replaced? Replacement Analysis • When should a new truck replace the existing truck? • When should a process be redesigned? • When should a product be redesigned? Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 3 Replacement Analysis Terms • Defender: the existing equipment, building, or decision previously implemented • Challenger: the proposed replacement currently under consideration Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 4 Aspects of Replacement Analysis 1.Using available data to determine the analysis technique 2.Determining the base comparison between alternatives 3.Using analysis techniques when: 1. Defender marginal cost can be computed and is increasing 2. Defender marginal cost can be computed and is not increasing 3. Defender marginal cost is not available 4.Considering possible future challengers 5.After-tax analysis Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 5 Shall the defender be replaced now or be maintained for one or more periods? The Replacement Problem • Engineers replace the existing due to: • Obsolescence: technological change • Depletion: loss of market value • Deterioration: wear that is overly expensive to repair Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 6 Issues (Consider Before Starting) • If a unit fails, must it be removed permanently from service, or repaired? • Are standby units available if the system fails? • Do components or units fail independently of the failure of other components? • Is there a budget constraint? • If the unit can be repaired after failure, is there a constraint on the capacity of the repair facility? Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 7 Issues (Continued) • Is only one replacement allowed over the planning horizon? Are subsequent replacements allowed at any time during the study period? • Is there more than one replacement unit (price and quality combination) available at a given point in time? • Do future replacement units differ over time? Are technological improvements considered?...
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This note was uploaded on 04/07/2008 for the course IMSE 530 taught by Professor Chang during the Fall '07 term at Kansas State University.

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Ch13 - Engineering Economic Analysis - Ninth Edition

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