Replacement Policy of Machinery Whose Operating Cost Auguments with Time and Its Value for Money Also Changes at a Constant Rate with Time
Calculating steps in replacement policy when the value changes with time.
- After knowing the current value factor at a provided rate, it should be multiplied by that equipment’s maintenance or operating cost for different years.
- Equate the total cost by adding all original cost of every year with its increased current value.
- After this, increase discount factors to get a result.
- The next step involves dividing the total cost by the result which is obtained after increased discount factors are applied for every year.
- Procure a value which surpasses total cost related to equipment which will be substituted forits current year.