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Replacement Analysis
Should the existing equipment be retained or replaced? The Defender is the existing equipment. The Challenger is the best available replacement equipment. If the defender proves more economical, it will be retained. If the challenger proves more economical, it will be installed.
Identify Alternatives
Best Challenger
Not Available
Find lowest EUAC for Defender Analysis Technique 2: Defenders lowest EUAC Challengers EUAC at its minimum cost life
Find EUAC over given life Analysis Technique 3: Defenders EUAC over its remaining life Challengers EUAC at its min. cost life
Are the defender marginal cost data available? Are the defender marginal costs increasing? The total marginal cost for any year can include: Capital recovery cost (loss in market value and loss interest for the year) Yearly operating and maintenance costs Yearly taxes and insurance Any other expenses that occurs during that year The marginal cost is calculated as an equivalent endof-year cash flow
Copyright Oxford University Press 2009
Total EUAC
Cost
6000
O&M
4000 2000 0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital Recovery
Year
Identify Alternatives
Best Challenger
Not Available
Find lowest EUAC for Defender Analysis Technique 2: Defenders lowest EUAC Challengers EUAC at its minimum cost life
Copyright Oxford University Press 2009
Find EUAC over given life Analysis Technique 3: Defenders EUAC over its remaining life Challengers EUAC at its min. cost life
Year 1 2 3 4 5 6 7
Capital Recovery Cost = MVN-1(A/P, 15%, 1) MVN(A/F, 15, 1) = MVN-1(1+15%) MVN(1) = (MVN-1 MVN) + MVN-1(15%)
Copyright Oxford University Press 2009
Year 0 1 2 3 4 5
Capital Recovery Cost = MVN-1(A/P, 15%, 1) MVN(A/F, 15, 1) = MVN-1(1+15%) MVN(1) = (MVN-1 MVN) + MVN-1(15%)
Copyright Oxford University Press 2009
Year 1 2 3 4 5
Year 1 2 3 4 5
O&M
$0 100 200 300 400 500 600 700 800 900 1,000
Marginal Cost $1500 1000 1050 1100 1150 700 800 900 1000 1100 1200
EUAC
$1,500.00 1,261.90 1,197.89 1,176.79 1,172.41 1,111.18 1,078.38 1,062.78 1,058.16* 1,060.78 1,068.29
Year 0 1 2 3 4 5
Uniform Decline
2 Year
Year 0 1 2 3 4 5 6 7