A Net Present Value Analysis of Opportunity-Based Age Replacement Models in Discrete Time

Jing Wu (), Cunhua Qian and Tadashi Dohi
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Jing Wu: Gradauate School of Advanced Science and Engineering, Hiroshima University, 1-4-1 Kagamiyama, Higashihiroshima 739-8527, Japan
Cunhua Qian: School of Economics and Management, Nanjing Tech University, Nanjing 211816, China
Tadashi Dohi: Gradauate School of Advanced Science and Engineering, Hiroshima University, 1-4-1 Kagamiyama, Higashihiroshima 739-8527, Japan

Mathematics, 2024, vol. 12, issue 10, 1-23

Abstract: Two important opportunistic age replacement models, under replacement first and last disciplines, are generalized in discrete time. The net present value (NPV) is applied to formulate the expected total costs. The priority of multiple replacement options is considered to classify the cost model with discounting into six cases. Since the NPV method accurately calculates the expected replacement costs over an infinite horizon in an unstable economic environment, we discuss some optimal opportunistic age replacement policies which minimize the expected total discounted costs over an infinite time horizon. Furthermore, we formulate a unified model under each discipline, merging six discrete time replacement models with probabilistic priority. Finally, a case study on optimal replacement first and last policies for pole air switches in a Japanese power company is presented.

Keywords: discrete time models; replacement first; replacement last; discounted cost functions; replacement priority; NPV method; probabilistic priority (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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