PART 2: REPLACE FOR MORE PROFIT

REPLACEMENT OF CONSTRUCTION EQUIPMENT CAN BE DECIDED UPON BY ONE OF THE FOLLOWING THREE METHODS: REPLACEMENT BY INTUITION, REPLACEMENT FOR MINIMIZING COSTS, OR REPLACEMENT FOR MAXIMIZING PROFITS. A SUMMARY IS PRESENTED OF THE DECISIONS REACHED BY THE THREE METHODS IN SOLVING AN EXAMPLE PROBLEM. A DISCOUNTED CASH FLOW MATHEMATICAL MODEL WAS DEVELOPED WHICH IS DESCRIBED. IN MAKING DECISIONS ABOUT EQUIPMENT POLICY, THE FOLLOWING FACTORS ARE CONSIDERED: (1) TIME VALUE OF MONEY, (2) TECHNOLOGICAL ADVANCES IN EQUIPMENT (OBSOLESCENCE), (3) EFFECT OF TAXES (DEPRECIATION TECHNIQUES, ETC.), (4) INFLUENCE OF INFLATION, INVESTMENT CREDIT, GAIN ON SALE, (5) INCREASED COST OF BORROWING MONEY, (6) CONTINUING REPLACEMENTS IN THE FUTURE, (7) INCREASED COST OF FUTURE MACHINES, AND (8) EFFECT OF PERIODIC OVERHAUL COSTS AND REDUCED AVAILABILITY. THE OPTIMIZATION OF PROFITS IS THE KEY TO THE SOLUTION OF MOST PROBLEMS BY USING A COMPUTER MODEL. ANOTHER MATHEMATICAL MODEL IS PRESENTED IN WHICH REVENUES AND COSTS ARE CONSIDERED FOR ALL MACHINES. THE REVENUES AND COSTS ARE CLASSIFIED AS: (1) REVENUES FROM THE SERVICES OF THE MACHINES, (2) MAINTENANCE AND OPERATING COSTS, INCLUDING ANNUAL FIXED COSTS, PENALTIES AND OVERHEAD, (3) CAPITAL COSTS, INCLUDING INTEREST ON INVESTMENTS, DEPRECIATION CHARGES, AND INTEREST ON BORROWED FUNDS, (4) DISCRETE COSTS SUCH AS ENGINE, TRACK, AND FINAL DRIVER OVERHAULS, AND (5) INCOME AND CORPORATION TAXES, CONSIDERING DEPRECIATION METHOD, RECAPTURE OF INCOME ON SALE AND INVESTMENT CREDIT. THESE MATHEMATICAL MODELS HELP IN PROPER ANALYSIS OF EQUIPMENT WHICH IS BASIC IN THE DEVELOPMENT OF SOUND REPLACEMENT POLICY. REPLACEMENT POLICY.

• Supplemental Notes:
  • Vol 52, No 4, PP 101, 104, 109, 112, 5 FIG. 1 TAB
• Authors:
  • DOUGLAS, J
• Publication Date: 1970-4

Media Info

• Serial:
  • Construction Methods and Equipment
  • Publisher: McGraw-Hill, Incorporated

Subject/Index Terms

• TRT Terms: Construction equipment; Costs; Decision making; Equipment; Equipment replacement; Information processing; Mathematical models; Profits; Revenues
• Old TRIS Terms: Equipment cost
• Subject Areas: Finance; Highways; Maintenance and Preservation; Vehicles and Equipment;

Filing Info

• Accession Number: 00219384
• Record Type: Publication
• Files: TRIS
• Created Date: Jun 15 1970 12:00AM