📚 Engineering Economics – Chapter 5: Replacement Analysis (Full Chapter + Free PDF + Numerical Problems)
🚀 Preparing for your Engineering Economics exams? Get the complete Chapter 5: Replacement Analysis covered in both video format and free PDF notes! These resources will help you understand key concepts quickly, revise efficiently, and score better in your exams.
🎥 Watch the Full Chapter Video Here:
👉 Click Here to Watch Theory on YouTube
👉 Click Here to Watch Numerical Part 1 on YouTube
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📚 What’s Covered in This Chapter? This chapter focuses on the evaluation of equipment and asset replacement decisions to minimize costs and maximize efficiency. It explains key approaches to compare existing assets (defender) with new alternatives (challenger) based on economic principles.
📌 Key Topics in This Chapter:
✔️ Fundamentals of Replacement Analysis
Basic Concepts and Terminology
Approaches for Comparing Defender and Challenger
✔️ Economic Service Life Analysis
Determining the Optimal Replacement Time
Comparing Service Life Costs
✔️ Replacement Analysis When Required Service Life is Long
Required Assumptions and Decision Framework
Replacement Analysis under the Infinite Planning Horizon
Replacement Analysis under the Finite Planning Horizon
📚 Want to learn all these topics in detail? Watch the full video now and download the PDF notes for quick revisions!
📂 Download Free PDF Notes – Chapter 5: Replacement Analysis To help you with exam preparation, we’ve compiled well-structured, exam-oriented notes in PDF format. These notes are perfect for:
👉 Quick concept understanding
👉 Last-minute revision
👉 Focusing on exam-relevant topics
🔽 Click below to download the PDF now!
🔽 Click below to download the PDF now!
To help you with exam preparation, we’ve compiled well-structured, exam-oriented notes in PDF format. These notes are perfect for:
✅ Quick concept understanding
✅ Last-minute revision
✅ Focusing on exam-relevant topics
🔽 Click below to download the PDF now!
📂 📂 Download Notes – Engineering Economics
Introduction
Replacement analysis is a critical aspect of engineering economics, focusing on determining the optimal time to replace existing assets (defenders) with new alternatives (challengers). This analysis ensures cost-effectiveness and operational efficiency in engineering projects.
Key Concepts
1. Defender vs. Challenger
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Defender: The current asset in use.
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Challenger: The potential new asset considered for replacement.
2. Economic Service Life
Determining the period during which an asset minimizes the total cost, considering both operating and capital costs.
3. Replacement Analysis Scenarios
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Same Useful Life: Comparing assets with identical service durations.
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Different Useful Lives: Employing methods like the Least Common Multiple (LCM) approach or the Equivalent Annual Cost (EAC) method to standardize comparisons.
Analytical Methods
1. Present Worth (PW) Method
Calculates the net present value of cash flows for both defender and challenger to determine the more economical option.
2. Annual Worth (AW) Method
Converts all costs and benefits into equivalent annual amounts to facilitate comparison.
3. Capitalized Cost Method
Used for assets with indefinite service lives, focusing on perpetual cost analysis.
Practical Applications
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Maintenance vs. Replacement Decisions: Evaluating whether to continue maintaining an existing asset or replace it.
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Technological Upgrades: Assessing the economic feasibility of adopting new technology.
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Policy Formulation: Informing decisions on asset management policies within organizations.
Numerical Examples
Example 1: Comparing Defender and Challenger
Problem: A company is considering replacing an old machine (defender) with a new one (challenger). The old machine has an annual operating cost of $5,000 and will last for another 3 years with no resale value. The new machine costs $20,000, has an annual operating cost of $2,000, and will last for 5 years with a salvage value of $3,000. If the discount rate is 8%, determine whether the company should replace the old machine.
Solution: Calculate the Present Worth (PW) of both options and compare to decide on replacement.
Example 2: Economic Service Life Analysis
Problem: A truck costs $50,000 with an annual operating cost of $6,000 in the first year, increasing by $500 every year. The truck has a salvage value of $10,000 after 5 years and $4,000 after 7 years. Determine the economic service life of the truck if the interest rate is 10%.
Solution: Compute the Equivalent Annual Cost (EAC) for each year and identify the year with the minimum EAC as the economic service life.
📌 Numerical Problems for Chapter 5
📂 Download Notes – Engineering Economics Chapter 5
👉 Click Here to Watch Theory on YouTube
👉 Click Here to Watch Numerical Part 1 on YouTube
Don’t forget to LIKE, COMMENT & SHARE the video if you find it helpful! More chapters are on the way, so stay tuned! 🔔
📌 Past Questions & Important Numericals on Engineering Economics 📖✨
🚀 Struggling with Engineering Economics? Ace your exams with our collection of past questions & important numericals! 💡💰
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📌 Numerical Problems for Chapter 5
To reinforce your understanding of key concepts, here are some numerical problems related to the topics covered in this chapter:
Problem 1: Comparing Defender and Challenger
Question: A company is considering replacing an old machine (defender) with a new one (challenger). The old machine has an annual operating cost of $5,000 and will last for another 3 years with no resale value. The new machine costs $20,000, has an annual operating cost of $2,000, and will last for 5 years with a salvage value of $3,000. If the discount rate is 8%, determine whether the company should replace the old machine.
Problem 2: Economic Service Life Analysis
Question: A truck costs $50,000 with an annual operating cost of $6,000 in the first year, increasing by $500 every year. The truck has a salvage value of $10,000 after 5 years and $4,000 after 7 years. Determine the economic service life of the truck if the interest rate is 10%.
Problem 3: Replacement Under Infinite Planning Horizon
Question: A factory replaces its production equipment every 6 years. The cost of new equipment is $30,000, with annual maintenance costs of $3,000. If the salvage value is $5,000 and the interest rate is 9%, determine the optimal replacement strategy under an infinite planning horizon.
Problem 4: Replacement Under Finite Planning Horizon
Question: A company has a 10-year planning horizon and must decide whether to replace its fleet of delivery vans now or in 4 years. The current fleet has an annual operating cost of $7,000 per van, while the new fleet would have an annual operating cost of $4,500. If the purchase cost of the new fleet is $80,000 and the discount rate is 6%, determine the best replacement decision.
📌 Explore More Lessons from Engineering Economics
📢 Want complete notes for the entire Engineering Economics course? Check out other chapters below:
📚 Chapter 1: Introduction to Engineering Economics – Download PDF
📚 Chapter 2: Interest and Time Value of Money – Download PDF
📚 Chapter 3: Basic Engineering Economic Analysis Methods – Download PDF
📚 Chapter 4: Comparative Analysis of Alternatives – Download PDF
📚 Chapter 5: Replacement Analysis – Download PDF
📚 Chapter 6: Risk Analysis in Engineering Economics – Download PDF
📚 Chapter 7: Depreciation & Corporate Income Taxes – Download PDF
📚 Chapter 8: Inflation & Its Impact on Project Cashflows – Download PDF
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