How Can You Justify Buying More Larger Equipment When Your Smaller Existing Equipment Isn't Worn Out?

This paper discusses equipment replacement strategies and specifically addresses the upgrading of technologically superseded equipment. The process of equipment replacement evaluations is reviewed, and areas have been highlighted where currently accepted practice results in a bias towards retaining existing equipment longer than otherwise justified. The Discounted Average Cost Method is described and the advantages of the technique for this style of decision making discussed. Several key issues influencing the replacement evaluation are also presented together with examples from recent consulting work.