Engineering Economy IEN255 Chapter 10 - Replacement Analysis  4-6 best investment alternative  How to add profit  but what about not increasing sales, but maintaining profit?  Three aspects  defender vs challenger  determination of economic service life  replacement analysis when service period is long

Engineering Economy Defender vs Challenger Challenger - best available replacement system Defender - existing machine (or system)

Engineering Economy Current market value  We will replace everything!!!  It’s just when?  Is now the time?  What is it worth now?

Engineering Economy Relevant info on market value  Original Cost  Book Value  Market Value  Trade-In allowance Which One?

Engineering Economy Sunk Costs  Past Cost Unaffected by Future Decisions  Tricky Part!!! Figure 10.1

Engineering Economy Gains and Losses on Disposal  fig 10.2

Engineering Economy Cash Flow Approach (Keep)  watch for UNEQUAL LIVES!!!!! table 10.1

Engineering Economy Cash Flow Approach (Replace)  table 10.2

Engineering Economy Compare  fig 10.3 and all four equations below

Engineering Economy Opportunity Cost Approach  fig 10.4 and four equations below

Engineering Economy Economic Service Life  Economic Service Life - period of useful life that minimizes the equivalent annual cost of owning and operating the asset  n=1 and n=2 from bottom of 518

Engineering Economy Economic Service Life cont  table 10.3

Engineering Economy Economic Service Life  table 10.4

Engineering Economy Economic Service Life  table 10.5

Engineering Economy Economic Service Life  fig 10.5

Engineering Economy Economic Service Life  fig 10.6 graph

Engineering Economy Long Service Required  If not now, when?  Planning  Technology  Revenue and Cost Patterns  Decision frameworks  fig 10.7

Engineering Economy Replacement Strategies  Steps  Economic Service Life ä Defender ä Challenger  Optimal Time to Replace the Defender  next pages tables 10.6, 10.7a, 10.7b, fig 10.8  and pg 533

Engineering Economy AE or not to AE?  fig 10.9

Engineering Economy AE (continued)  bottom of page 534 and top of 536

Engineering Economy Finite Horizon  Solution 10.7  and next page 538 and 539

Engineering Economy Technology Change  wait until technology improves

Engineering Economy IEN255 Summer’99 Chapter 10 HW#4  Homework Assignment: Chapter 10 #’s 10.4; 10.6;  Due with chapter 11 homework (likely Tues July 27)