In order to make a replacement decision when the defender and the challenger are identical, one should assume that
A)the economic lives of the assets are very long relative to the planning time horizon.
B)the technology can be changed during the economic life of an asset.
C)the relative price and interest rate vary over time.
D)the replacement decision is repeated an indefinitely large number of times.
E)the defender and the challenger are made using different technologies.

Question

Quizplus · Accepted Answer

In a replacement decision scenario where the defender (existing asset) and the challenger (potential new asset) are identical, assuming that the replacement decision is repeated an indefinitely large number of times allows for a simplified analysis. This assumption implies that the decision to replace or not will recur with each cycle, making the analysis focus on the costs and benefits of one cycle, as they will be representative of each subsequent cycle.

In Order to Make a Replacement Decision When the Defender