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dc.contributor.authorAdkins, Roger*
dc.contributor.authorPaxson, D.*
dc.date.accessioned2017-03-06T12:48:17Z
dc.date.available2017-03-06T12:48:17Z
dc.date.issued2017-02-16
dc.identifier.citationAdkins R and Paxson D (2017) Replacement decisions with multiple stochastic values and depreciation. European Journal of Operational Research. 257(1): 174-184.en_US
dc.identifier.urihttp://hdl.handle.net/10454/11543
dc.descriptionYesen_US
dc.description.abstractWe develop an analytical real-option solution to the after-tax optimal timing boundary for a replaceable asset whose operating cost and salvage value deteriorate stochastically. We construct a general replacement model, from which seven other particular models can be derived, along with deterministic versions. We show that the presence of salvage value and tax depreciation significantly lowers the operating cost threshold that justifies (and thus hastens) replacement. Although operating cost volatility increases defer replacement, increases in the salvage value volatility hasten replacement, albeit modestly, while increases in the correlation between costs and salvage value defer replacement. Reducing the tax rate or depreciation lifetime, or allowing an investment tax credit, yield mixed results. These results are also compared with those of less complete models, and deterministic versions, showing that failure to consider several stochastic variables and taxation in the replacement process may lead to sub-optimal decisions.en_US
dc.language.isoenen_US
dc.rights© 2017 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/)en_US
dc.subjectReplacement; Stochastic operating cost; Salvage value; Tax deprecationen_US
dc.titleReplacement decisions with multiple stochastic values and depreciationen_US
dc.status.refereedYesen_US
dc.date.Accepted2016-07-05
dc.date.application2016-07-14
dc.typeArticleen_US
dc.type.versionAccepted Manuscripten_US
dc.identifier.doihttps://doi.org/10.1016/j.ejor.2016.07.006
refterms.dateFOA2018-07-15T00:00:00Z


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