Asset replacement
In this lesson, you'll learn how to decide when it's most economical to replace an ageing asset rather than continuing to maintain it. This is a practical investment appraisal technique that helps organisations minimise costs and protect profitability as non-current assets deteriorate over time.
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About this lesson
You'll discover the equivalent annual cost method, which converts the total cost of owning an asset over its life into a single annual figure in present value terms. This allows you to compare assets with different purchase prices, maintenance costs, scrap values, and useful lives on a like-for-like basis. The video walks through a step-by-step worked example using two machines with different characteristics, showing you how to calculate the net present value of each asset, select the correct annuity factor, and apply the formula to reach your decision. You'll also learn when to use equivalent annual benefit as an alternative approach, particularly when projects could be repeated and have different lifespans. This technique is essential for FM, Performance Management, and Strategic Business Leader papers, where capital investment decisions feature regularly in exam scenarios.
Duration: 9m
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