Replacement cost, economic value

The efficient heat pump reduces energy use by 1,676 kWh per year on average. Is the efficient model heat pump a good investment Suppose the incremental cost of the efficient unit, as compared with the less efficient unit, is 1,000, and electricity cost 10 cents per kWh. With this price of electricity, the efficient heat pump reduces electricity costs by 167.60 per year. Taking a simplified approach for purposes of illustration and assuming that each unit lasts indefinitely and has no repair, maintenance, or replacement costs, and ignoring possible tax effects, the internal rate of return may be calculated as 1,000= 167.60/r, which is 16.76 percent per year. If the household can borrow money at, say, 10 percent per year and earn 16.76 percent, the investment makes economic sense. If we assume a 10 percent discount rate, the present value of the investment is 1,676, which exceeds the initial investment cost. The net present value is 676, which indicates that the investment is feasible. 

As is seen, this example shows that flame retardants might be good for society (from a socio-economic perspective) even if they cause a number of adverse environmental and human health impacts as long as the value of the avoided mortality impacts is larger. Replacement of flame retardants should only be done (from an economic perspective) if the replacement cost is smaller than the avoided environmental and human health values. 

Over the past half century, the held of economics has developed a rich and extensive literature that advances the theory and methodology of estimating values associated with the myriad unmarketed yet economically valuable benefits provided by nature. While the literature is vast, the number of approaches available to estimate the economic value of ecosystem services remains limited to only a handful, each with its own strengths and weaknesses (for comprehensive reviews, see Mitchell and Carson, 1989 Freeman, 1993 Smith, 2000 Mathis et al., 2003). These include replacement costs and avoided costs analysis, factor income analysis, hedonic pricing, contingent valuation, and travel costs analysis. A discussion of these approaches follows later in this section. Although there is often considerable debate about the methods used and the accuracy of the values derived, there is little doubt that the unpriced economic value of ecosystem services is enormous.9... 

Any number of methods for economic analysis could be employed here, a discounted cash flow analysis is used. Assume that (a) the heater replacement cost is 235,000 (b) the replacement heater will have a 20-year life and an 18,000 salvage value (c) fuel and maintenance savings are escalated at 6% per year (d) after tax cost of capital is 9%. Table III shows the results of the cash flow analysis of the proposed investment in a replacement heater. As is indicated, since the net cumulative discounted cash flow (+ 29,166) is positive, the replacement of the heater is justified. 

Asset Any owned physical object (tangible) or right (intangible) having economic value to its owners an item or source of wealth with continuing benefits for future periods, expressed for accounting purposes in terms of its cost or other value (such as current replacement cost). 

Step 2 in a traditional approach to maintenance optimisation is to determine the relevant cost parameters in the model. Costs are associated with planned and corrective maintenance, as well as with system imavadability (lost production). In the simplest models repair and replacement costs of a component are assumed to be fixed values, say c and d, respectively. In more advanced models the repair and replacement costs could depend on the age of the components and on factors such as the waiting time for spare parts and the need for redesign. Cost (economic) dependencies could also he included to reflect for example the opportunity to reduce costs by repairing/ replacing several units at the same time. Similarly, on the system level the replacement cost could he considered fixed or dependent on the state of the components and their ages. The lost production cost is normally computed by assuming a fixed cost per unit of time the system is in a particular (failure) state. 

The effects and value of quality control are fer-reaching, and the absence or feilure of quality control has equally far-reaching consequences. One can readily imagine the economic costs if the dependability of products were to decline. The cost per unit produced would rise as the proportion of unusable products increased. In the marketplace, more products would prove to be defective or fail, resulting in greater repair and replacement costs for the producer and consumer. If quality-control mechanisms affected service, resulting in less effective services, consumer satisfaction would also decline. Quality-control procedures most likely will become an increasingly prominent component of production as more effective methods are developed. 

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