{"title":"Economic service life of equipment under uncertain revenues: A real options approach","authors":"Kyung-Taek Kim, Donghyun An, Deok-Joo Lee","doi":"10.1080/0013791X.2021.1946226","DOIUrl":null,"url":null,"abstract":"Abstract Companies which utilize equipment as a critical manufacturing asset should resolve the problem of economic replacement. In this article, a case study of equipment replacement for an auto parts manufacturer is presented. We derive a formula to calculate the expected service life using a classical binomial real options model under revenue uncertainty. A sensitivity analysis shows that the initial cost of the equipment has the largest impact on the expected service life in this case study. The presented real option model is applicable to manufacturing companies which seek to the solution of economic equipment replacement under revenue uncertainty.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"245 - 261"},"PeriodicalIF":1.0000,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1946226","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Engineering Economist","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1080/0013791X.2021.1946226","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 0
Abstract
Abstract Companies which utilize equipment as a critical manufacturing asset should resolve the problem of economic replacement. In this article, a case study of equipment replacement for an auto parts manufacturer is presented. We derive a formula to calculate the expected service life using a classical binomial real options model under revenue uncertainty. A sensitivity analysis shows that the initial cost of the equipment has the largest impact on the expected service life in this case study. The presented real option model is applicable to manufacturing companies which seek to the solution of economic equipment replacement under revenue uncertainty.
Engineering EconomistENGINEERING, INDUSTRIAL-OPERATIONS RESEARCH & MANAGEMENT SCIENCE
CiteScore
2.00
自引率
0.00%
发文量
14
审稿时长
>12 weeks
期刊介绍:
The Engineering Economist is a refereed journal published jointly by the Engineering Economy Division of the American Society of Engineering Education (ASEE) and the Institute of Industrial and Systems Engineers (IISE). The journal publishes articles, case studies, surveys, and book and software reviews that represent original research, current practice, and teaching involving problems of capital investment.
The journal seeks submissions in a number of areas, including, but not limited to: capital investment analysis, financial risk management, cost estimation and accounting, cost of capital, design economics, economic decision analysis, engineering economy education, research and development, and the analysis of public policy when it is relevant to the economic investment decisions made by engineers and technology managers.