Optimum Equipment Life by Minimum Life‐Cycle Costs

Abstract

A minimum cost equipment replacement model based on the present worth of discounted‐cash‐flow is presented. The model uses arithmetic and geometric gradients to project the expected life cycle costs of the existing machine plus future replacements to an infinite horizon and then discounts them back to present value. Trial life spans of the existing unit, plus future replacement units, are then ranged until the combination which yields the minimum present value of total costs is determined. The general methodology is reviewed and its application illustrated with a sample problem.