Asset replacement decision

Replacement analysis compares feasible options such as continued use, repair or replacement. Include relevant acquisition, operating, disposal and tax cash flows with consistent timing; historical purchase cost is sunk except for effects on future tax or disposal consequences. Equivalent annual cost can compare repeatable cycles delivering equivalent service, but it is not the definition of every replacement decision. Unequal benefits, changing technology, financing constraints and a finite service requirement may need a broader NPV comparison. Specify the assumptions before treating the lowest annualised cost as optimal.