CHAPTER 7
Replacement and Retention Decisions
7.1 INTRODUCTION
Business organizations use physical assets in the form of machines and equipment to produce goods and services. After a particular period of service, there might be a need for the replacement of the existing assets and therefore, the firms must constantly monitor the performance of the assets so as to decide whether they should be continued in service or they should be replaced with new assets. Replacement study is carried out to make economic decision to retain or replace an existing asset. If the decision is to replace, the study is complete. However, if the decision is to retain, the cost estimates and decision will be reconsidered each year to ensure that the decision to retain ...
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