An Example of Replacement Analysis
Replacement analysis is identical to the process described in Chapter 10, but two additional terms need to be defined:
The defender is the existing asset that you are thinking about replacing.
A challenger is an asset being considered as a replacement for the defender.
As mentioned in Chapter 11, defenders will tend to have low capital costs but relatively high operation and maintenance costs. The investment in the defender was probably made a long time ago, and relatively little additional investment, if any, is needed to keep it. However, the operation and maintenance costs are usually relatively high. If you bought a car several years ago, it could already be paid off—you're not making loan payments on it ...
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