Equipment Replacement in an Unsteady Economy

Abstract

The decision problem concerning the replacement of members of a fleet of fork lift trucks during a period of inflation and economic uncertainty is considered. Based upon the analysis of data collected over a 2 year period of considerable inflation, a model of the expected operating costs for a truck is developed. The usual replacement criteria are not applicable here and an alternative criterion function based upon relatively short term estimates of costs and discount rate is presented. Using this function, the replacement decision is determined for both constant and variable discount rate situations.