Replacement Analysis is the economic analysis to compare existing and new facilities to make good replacement at an appropriate time. Replacement can be done due to various reasons like obsolescence, depletion, high cost, physical impairment, etc. It has got many advantages like reducing cost, losses and time costs, and introduce modernization and increase enthusiasm among workers. The economic service life (ESL) is the number of year (n*) at which the equivalent uniform annual worth (AW) of costs is the minimum.
The minimum cost life of any new (existing) asset is the number of years at which the equivalent uniform annual cost (EUAC) of the ownership is minimized. The three assumption like Planning horizon, Technology and Relevant Cash flow information are made in replacement analysis. Replacement analysis can be made under finite and infinite planning horizon for when the service life is long.