A COMPARISON BETWEEN AE AND NPV IN THE REPLACEMENT PROBLEM

Resumo

When maintenance cost rise and market value of physical assets decreases, it is a sign that the moment to replace the equipment (physical asset) is close. In the traditional literature the main criteria in engineering economics are the net present value (NPV) and the annuity equivalent (AE). However, the differences between both criteria are not explicit. So, the goal of this paper is to compare and contrast the models of NPV and AE, as well as their advantages and disadvantages, in the replacement problem. On conclusion, for the decision-maker, the AE is the best criteria, as it can provide the assetâs economic life and conduct the replacement between two assets. The other criterion, the NPV, as it doesnât provide the economic life, but only used for replacement between two assets, it is not as useful as the AE.