My question is regarding the comparability of replacement cost in year 2 and 3 and even year 1. when we discount doesn't that mean that it is the cost that would be paid equivalent to year 0?
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Hello Sir John muffet.
4y ago#1Yes it does. However because the machine keeps being replaced and the cash flows keep repeating, then so does the PV keep repeating in perpetuity.
sir If the cost is already brought to year 0 then why is it not comparable. ?
4y ago#3Because it is only the cost of the first machine that it brought to year 0. The machine is going to be replaced indefinitely and the same cash flows will therefore be repeated indefinitely.
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