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Asset Replacement Principles

R. K. Perrin
American Journal of Agricultural Economics
Vol. 54, No. 1 (Feb., 1972), pp. 60-67
Stable URL: http://www.jstor.org/stable/1237734
Page Count: 8
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Asset Replacement Principles
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Abstract

Using a general model of asset replacement, a replacement principle is derived which applies to both appreciating assets such as forests and depreciating assets such as equipment. The resulting replacement criterion provides a definition of opportunity costs appropriate for the replacement decision. The theory is presented graphically for the continuous time case, and two discrete-time examples are considered. Theoretical implications of changing discount rates and market forces are considered as they affect replacement policies.

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