Optimal Asset Abandonment and Replacement: Tax and Inflation Considerations

Son-Nan Chen

The Financial Review, 1991, vol. 26, issue 2, 157-77

Abstract: The tax and inflation effects on the abandonment and replacement policies are examined for capital assets. The tax effect is shown to defer abandonment for some classes of assets while the asset duration is shortened for others depending on the characteristic of the marginal rates of return of extending asset life. Moreover, inflation may increase or decrease the asset duration depending on the rates of inflation growth of asset nominal cash flows and abandonment value and depending on the relaitve benefit of asset abandonment. In additon, the Fisher hypothesis of constant real returns relative to anticipated inflation is also examined in the case of asset abandonment and replacement. The results derived for a single cycle of replacement carry over to the replacement policy in an infinite cycle of replacement. Copyright 1991 by MIT Press.

Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:26:y:1991:i:2:p:157-77

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0732-8516

Access Statistics for this article

The Financial Review is currently edited by Cynthia J. Campbell and Arnold R. Cowan

More articles in The Financial Review from Eastern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().