Replacement Model with Linear Trend Running Cost and Forecasted Inflation

Srinivas Basamgari, Dr. S. Gajanana, Dr. K. Hemachandra Reddy

Abstract: The current paper is focused in development of best replacement strategy to determine an age of machine at which the replacement is most economical. It is assumed that the annual maintenance cost of machine follows linear trend. Using trend equation along with parameters like money value, forecasted inflation, nominal interest rate and real interest rate are taken into consideration in model development and the replacement period to machine is suggested.

Keywords: Replacement, Inflation, Forecasting, Interest rates, Money value