KEVOS® MAKEOS · Money
Repair or Replace (Defender and Challenger Equivalent Annual Cost)
Should I keep running this old machine, with its rising running costs, or replace it with a new one, comparing them as equivalent annual costs?
Replacement decision between an existing machine (the defender) and a new one (the challenger): the defender’s equivalent uniform annual cost from its present market value, first-year running cost rising by a yearly gradient (using the gradient factor, as the interest factors tool) and its salvage at the end of its remaining life, the challenger’s equivalent annual cost from price, running cost and salvage (as the EUAC comparison tool), the yearly difference and the decision.
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Interest rate | % | Interest rate or minimum acceptable rate of return. |
| Defender (keep the old machine) | ||
| Present market value | $ | What the old machine would fetch if sold now (its opportunity cost). |
| Running cost next year | $/yr | Operating and maintenance cost of the old machine next year. |
| Yearly increase in running cost | $/yr | How much that cost rises each year after. |
| Salvage at the end | $ | What the old machine will fetch at the end of its remaining life. |
| Remaining life | years | Years the old machine could still run. |
| Challenger (new machine) | ||
| Price installed | $ | Price of the new machine installed. |
| Running cost per year | $/yr | Yearly operating and maintenance cost of the new machine. |
| Salvage at the end | $ | Salvage of the new machine at the end of its life. |
| Life | years | Life of the new machine. |
Method and formulas
- Capital recovery (A/P, i, n) = i (1 + i)ⁿ ÷ [(1 + i)ⁿ − 1]; sinking fund (A/F) = i ÷ [(1 + i)ⁿ − 1]; gradient (A/G) = 1 ÷ i − n ÷ [(1 + i)ⁿ − 1] (as the interest factors tool).
- Defender EUAC = MV (A/P) + A₁ + G (A/G) − salvage (A/F).
- Challenger EUAC = P (A/P) + running cost − salvage (A/F) (as the EUAC comparison tool).
- Example: keeping costs 20,671 a year, replacing 17,232; replace it, saving 3,438.9 a year.
Limitations
- Before tax; repeatability of the challenger is assumed when lives differ.
- Productivity and quality differences must be added as costs or savings.
- Example values are illustrations. Replace them with values for your actual task.
Typical uses
- Decide whether to replace an ageing machine
- Justify a replacement budget
- Find how fast running cost must rise to justify replacement
Who it is for
- Maintenance managers
- Engineering managers
- Finance analysts
What you get
- Defender equivalent annual cost
- Challenger equivalent annual cost
- Yearly difference and decision
Interpreting the result
- The old machine’s sunk cost does not matter: only what it could be sold for now.
References
- Machinery’s Handbook, 29th edition (Industrial Press, 2012), printed pp. 134–146. Topic reference; no source tables or recommended settings are reproduced.
WORKOS tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.
Open the Repair or Replace (Defender and Challenger Equivalent Annual Cost) calculator
